UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38054
Schneider National, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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| Wisconsin | | | | | | 39-1258315 |
| (State of Incorporation) | | | | | | (IRS Employer Identification No.) |
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| | 3101 South Packerland Drive | | |
| | Green Bay | Wisconsin | 54313 | | |
| | (Address of Registrant’s Principal Executive Offices and Zip Code) | | |
(920) 592-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading symbol | | Name of each exchange on which registered |
| Class B common stock, no par value | | SNDR | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of October 21, 2022,July 28, 2023, the registrant had 83,029,500 shares of Class A common stock, no par value, outstanding and 94,982,78093,908,585 shares of Class B common stock, no par value, outstanding.
SCHNEIDER NATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended SeptemberJune 30, 20222023
TABLE OF CONTENTS
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| ITEM 1. | | | |
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| Note 1 | | | |
| Note 2 | | | |
| Note 3 | | | |
| Note 4 | | | |
| Note 5 | | | |
| Note 6 | | | |
| Note 7 | | | |
| Note 8 | | | |
| Note 9 | | | |
| Note 10 | | | |
| Note 11 | | | |
| Note 12 | | | |
| Note 13 | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
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| ITEM 1. | | | |
| ITEM 1A. | | | |
| ITEM 2. | | | |
| ITEM 3. | | | |
| ITEM 4. | | | |
| ITEM 5. | | | |
| ITEM 6. | | | |
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GLOSSARY OF TERMS
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| 3PL | Provider of outsourced logistics services. In logistics and supply chain management, it means a company’s use of third-party businesses, the 3PL(s), to outsource elements of the company’s distribution, fulfillment, and supply chain management services. |
| ASC | Accounting Standards Codification |
ASUBoard | Accounting Standards Update |
BNSF | Burlington Northern Santa Fe Railway Company |
CARES | Coronavirus Aid, Relief, and Economic SecurityBoard of Directors |
| ChemDirect | Fortem Invenio, Inc. |
| CODM | Chief Operating Decision Maker |
COVID-19 | Coronavirus disease 2019, including its variants |
| deBoer | deBoer Transportation, Inc. |
FASBEBITDA | Financial Accounting Standards BoardEarnings Before Interest, Taxes, Depreciation & Amortization |
| GAAP | United States Generally Accepted Accounting Principles |
ILWUIAS | International Longshore and Warehouse UnionAccounting Standards |
| |
| IPO | Initial Public Offering |
| KPI | Key Performance Indicator |
| LIBOR | London InterBank Offered Rate |
| M&A | Mergers and Acquisitions |
| M&M | M & M Transport Services, LLC |
| MLS | Midwest Logistics Systems, Ltd. and affiliated entities holding assets comprising substantially all of its business.business |
| MLSI | Mastery Logistics Systems, Inc. |
| NASDAQ | National Association of Securities Dealers Automated Quotations |
PMAPSU | Pacific Maritime AssociationPerformance-based Restricted Stock Unit |
PSIRSU | Platform Science, Inc.Restricted Stock Unit |
| rTSR | Relative Total Shareholder Return |
| SEC | United States Securities and Exchange Commission |
| SOFR | Secured Overnight Financing Rate |
| TuSimple | TuSimple Holdings, Inc. (formerly TuSimple (Cayman) Limited) |
UP | Union Pacific Railroad Company |
| U.S. | United States |
| WSL | Watkins and Shepard Trucking, Inc. and Lodeso, Inc. These businesses were acquired simultaneously in June 2016. |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current expectations, beliefs, plans, or forecasts with respect to, among other things, future events and financial performance and trends in the business and industry. The words “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “prospects,” “potential,” “budget,” “forecast,” “continue,” “predict,” “seek,” “objective,” “goal,” “guidance,” “outlook,” “effort,” “target,” and similar words, expressions, terms, and phrases among others, generally identify forward-looking statements, which speak only as of the date the statements were made. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks, and uncertainties. Readers are cautioned that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.
The risks, uncertainties, and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: inflation, both in the U.S. and globally; our ability to successfully manage the demand, supply, and operational challenges and disruptions, (including the impact of reduced freight volumes) associated with the COVID-19 pandemic and the associated responses ofas well as related federal, state, and local governments and businesses;government responses arising from future pandemics; economic and business risks inherent in the truckload and transportation industry, including inflation, freight cycles, and competitive pressures pertaining to pricing, capacity, and service; our ability to effectively manage tight truck capacity brought about by driver shortages and successfully execute our yield management strategies; our ability to maintain key customer and supply arrangements (including dedicated arrangements) and to manage disruption of our business due to factors outside of our control, such as natural disasters, acts of war or terrorism, disease outbreaks, or pandemics; volatility in the market valuation of our investments in strategic partners and technologies; our ability to manage and effectively implement our growth and diversification strategies and cost saving initiatives; our dependence on our reputation and the Schneider brand and the potential for adverse publicity, damage to our reputation, and the loss of brand equity; risks related to demand for our service offerings; risks associated with the loss of a significant customer or customers; capital investments that fail to match customer demand or for which we cannot obtain adequate funding; fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase agreements, our ability to recover fuel costs through our fuel surcharge programs, and potential changes in customer preferences (e.g. truckload vs. intermodal services) driven by diesel fuel prices; fluctuations in the value and demand for our used Class 8 heavy-duty tractors and trailers; our ability to attract and retain qualified drivers and owner-operators; our reliance on owner-operators to provide a portion of our truck fleet; our dependence on railroads in the operation of our intermodal business; our ability to successfully transition from BNSF to UP as our primary intermodal rail service provider by January 2023; potential port congestion or interruptions that may result from contract negotiations between the ILWUInternational Longshore and Warehouse Union and west coast port owners; service instability, availability, and/or increased costs from third-party capacity providers used by our business; changes in the outsourcing practices of our third-party logistics customers; difficulty in obtaining material, equipment, goods, and services from our vendors and suppliers; variability in insurance and claims expenses and the risks of insuring claims through our captive insurance company; the impact of laws and regulations that apply to our business, including those that relate to the environment, taxes, associates, owner-operators, and our captive insurance company; changes to those laws and regulations; and the increased costs of compliance with existing or future federal, state, and local regulations; political, economic, and other risks from cross-border operations and operations in multiple countries; risks associated with financial, credit, and equity markets, including our ability to service indebtedness and fund capital expenditures and strategic initiatives; negative seasonal patterns generally experienced in the trucking industry during traditionally slower shipping periods and winter months; risks associated with severe weather and similar events; significant systems disruptions, including those caused by cybersecurity events and firmware defects; exposure to claims and lawsuits in the ordinary course of business; our ability to adapt to new technologies and new participants in the truckload and transportation industry; our ability to implement our plans to meet our greenhouse gas reduction goals; and those risks and uncertainties discussed in (1) our most recently filed Annual Report on Form 10-K in (a) Part I, Item 1A. “Risk Factors,” (b) Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (c) Part II, Item 8. “Financial Statements and Supplementary Data: Note 14,13, Commitments and Contingencies,” (2) this Quarterly Report on Form 10-Q in (a) Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (b) Part I, Item 1. “Financial Statements: Note 12, Commitments and Contingencies,” and (c) Part II, Item 1A. “Risk Factors,” and (3) other factors discussed in filings with the SEC by the Company.
The Company undertakes no obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.
WHERE TO FIND MORE INFORMATION
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that the Company files electronically with the SEC. These documents are also available to the public from commercial document retrieval services and at the “Investors” section of our website at www.schneider.com. Information disclosed or available on our website shall not be deemed incorporated into, or to be a part of, this Report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions, except per share data)
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Operating revenues | Operating revenues | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | | Operating revenues | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | | | | |
| Purchased transportation | Purchased transportation | 735.0 | | | 692.3 | | | 2,254.0 | | | 1,900.4 | | Purchased transportation | 531.8 | | | 778.9 | | | 1,094.9 | | | 1,519.0 | |
| Salaries, wages, and benefits | Salaries, wages, and benefits | 356.0 | | | 290.2 | | | 1,034.4 | | | 832.9 | | Salaries, wages, and benefits | 325.5 | | | 340.9 | | | 663.3 | | | 678.4 | |
| Fuel and fuel taxes | Fuel and fuel taxes | 133.4 | | | 70.3 | | | 390.9 | | | 204.1 | | Fuel and fuel taxes | 96.8 | | | 147.3 | | | 209.8 | | | 257.5 | |
| Depreciation and amortization | Depreciation and amortization | 88.2 | | | 74.2 | | | 258.3 | | | 220.5 | | Depreciation and amortization | 93.2 | | | 86.3 | | | 185.0 | | | 170.1 | |
| Operating supplies and expenses—net | Operating supplies and expenses—net | 149.7 | | | 108.7 | | | 392.0 | | | 362.0 | | Operating supplies and expenses—net | 140.6 | | | 152.8 | | | 288.5 | | | 242.3 | |
| Insurance and related expenses | Insurance and related expenses | 26.5 | | | 19.3 | | | 78.0 | | | 60.7 | | Insurance and related expenses | 25.7 | | | 25.1 | | | 50.4 | | | 51.5 | |
| Other general expenses | Other general expenses | 41.1 | | | 35.8 | | | 178.0 | | | 97.6 | | Other general expenses | 29.1 | | | 39.0 | | | 64.9 | | | 136.9 | |
| | Total operating expenses | Total operating expenses | 1,529.9 | | | 1,290.8 | | | 4,585.6 | | | 3,678.2 | | Total operating expenses | 1,242.7 | | | 1,570.3 | | | 2,556.8 | | | 3,055.7 | |
| Income from operations | Income from operations | 145.4 | | | 153.7 | | | 457.1 | | | 355.7 | | Income from operations | 103.8 | | | 176.6 | | | 218.4 | | | 311.7 | |
| Other expenses (income): | Other expenses (income): | | | | | | | | Other expenses (income): | | | | | | | |
| Interest income | Interest income | (0.8) | | | (0.6) | | | (1.5) | | | (1.8) | | Interest income | (2.6) | | | (0.3) | | | (4.7) | | | (0.7) | |
| Interest expense | Interest expense | 2.1 | | | 3.3 | | | 7.1 | | | 9.7 | | Interest expense | 2.4 | | | 2.2 | | | 6.8 | | | 5.0 | |
| Other expenses (income)—net | (23.6) | | | 4.0 | | | (12.3) | | | (14.8) | | |
| Other expense (income)—net | | Other expense (income)—net | 0.8 | | | 2.1 | | | (16.2) | | | 11.3 | |
| Total other expenses (income)—net | Total other expenses (income)—net | (22.3) | | | 6.7 | | | (6.7) | | | (6.9) | | Total other expenses (income)—net | 0.6 | | | 4.0 | | | (14.1) | | | 15.6 | |
| Income before income taxes | Income before income taxes | 167.7 | | | 147.0 | | | 463.8 | | | 362.6 | | Income before income taxes | 103.2 | | | 172.6 | | | 232.5 | | | 296.1 | |
| Provision for income taxes | Provision for income taxes | 41.9 | | | 37.0 | | | 116.1 | | | 91.3 | | Provision for income taxes | 25.7 | | | 42.8 | | | 57.0 | | | 74.2 | |
| Net income | Net income | 125.8 | | | 110.0 | | | 347.7 | | | 271.3 | | Net income | 77.5 | | | 129.8 | | | 175.5 | | | 221.9 | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
| Foreign currency translation adjustment—net | Foreign currency translation adjustment—net | (0.1) | | | (0.1) | | | — | | | 0.1 | | Foreign currency translation adjustment—net | 0.3 | | | — | | | 0.6 | | | 0.1 | |
| Net unrealized loss on marketable securities—net of tax | (1.3) | | | (0.2) | | | (3.9) | | | (0.6) | | |
| Total other comprehensive loss—net | (1.4) | | | (0.3) | | | (3.9) | | | (0.5) | | |
| Net unrealized gains (losses) on marketable securities—net of tax | | Net unrealized gains (losses) on marketable securities—net of tax | (0.4) | | | (1.0) | | | 0.1 | | | (2.6) | |
| Total other comprehensive income (loss)—net | | Total other comprehensive income (loss)—net | (0.1) | | | (1.0) | | | 0.7 | | | (2.5) | |
| Comprehensive income | Comprehensive income | $ | 124.4 | | | $ | 109.7 | | | $ | 343.8 | | | $ | 270.8 | | Comprehensive income | $ | 77.4 | | | $ | 128.8 | | | $ | 176.2 | | | $ | 219.4 | |
| | Weighted average shares outstanding | Weighted average shares outstanding | 178.0 | | | 177.7 | | | 177.9 | | | 177.5 | | Weighted average shares outstanding | 178.1 | | | 178.0 | | | 178.1 | | | 177.8 | |
| Basic earnings per share | Basic earnings per share | $ | 0.71 | | | $ | 0.62 | | | $ | 1.95 | | | $ | 1.53 | | Basic earnings per share | $ | 0.44 | | | $ | 0.73 | | | $ | 0.99 | | | $ | 1.25 | |
| | Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 178.7 | | | 177.9 | | | 178.6 | | | 177.8 | | Weighted average diluted shares outstanding | 178.7 | | | 178.5 | | | 178.9 | | | 178.5 | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.70 | | | $ | 0.62 | | | $ | 1.95 | | | $ | 1.53 | | Diluted earnings per share | $ | 0.43 | | | $ | 0.73 | | | $ | 0.98 | | | $ | 1.24 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share data)
| | | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Assets | Assets | | | | Assets | | | |
| Current Assets: | Current Assets: | | Current Assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 349.7 | | | $ | 244.8 | | Cash and cash equivalents | $ | 249.2 | | | $ | 385.7 | |
| Marketable securities | Marketable securities | 44.6 | | | 49.3 | | Marketable securities | 54.8 | | | 45.9 | |
Trade accounts receivable—net of allowance of $10.9 million and $5.2 million, respectively | 729.7 | | | 705.4 | | |
Trade accounts receivable—net of allowance of $13.2 million and $13.7 million, respectively | | Trade accounts receivable—net of allowance of $13.2 million and $13.7 million, respectively | 611.0 | | | 643.7 | |
| Other receivables | Other receivables | 31.3 | | | 35.9 | | Other receivables | 48.5 | | | 21.3 | |
Current portion of lease receivables—net of allowance of $1.4 million and $1.1 million, respectively | 112.7 | | | 110.6 | | |
| Inventories | 43.1 | | | 27.4 | | |
Current portion of lease receivables—net of allowance of $1.0 million and $1.3 million, respectively | | Current portion of lease receivables—net of allowance of $1.0 million and $1.3 million, respectively | 108.0 | | | 111.2 | |
| Inventories—net | | Inventories—net | 84.8 | | | 53.0 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 97.2 | | | 75.1 | | Prepaid expenses and other current assets | 140.6 | | | 89.5 | |
| Total current assets | Total current assets | 1,408.3 | | | 1,248.5 | | Total current assets | 1,296.9 | | | 1,350.3 | |
| Noncurrent Assets: | Noncurrent Assets: | | | | Noncurrent Assets: | | | |
| Property and equipment: | Property and equipment: | | Property and equipment: | |
| Transportation equipment | Transportation equipment | 3,346.3 | | | 3,056.2 | | Transportation equipment | 3,549.3 | | | 3,410.7 | |
| Land, buildings, and improvements | Land, buildings, and improvements | 217.3 | | | 215.7 | | Land, buildings, and improvements | 225.1 | | | 219.0 | |
| Other property and equipment | Other property and equipment | 176.1 | | | 175.1 | | Other property and equipment | 179.8 | | | 174.1 | |
| Total property and equipment | Total property and equipment | 3,739.7 | | | 3,447.0 | | Total property and equipment | 3,954.2 | | | 3,803.8 | |
| Less accumulated depreciation | Less accumulated depreciation | 1,538.6 | | | 1,396.0 | | Less accumulated depreciation | 1,520.7 | | | 1,523.8 | |
| Net property and equipment | Net property and equipment | 2,201.1 | | | 2,051.0 | | Net property and equipment | 2,433.5 | | | 2,280.0 | |
| Lease receivables | Lease receivables | 168.8 | | | 160.1 | | Lease receivables | 153.9 | | | 163.1 | |
| Internal use software and other noncurrent assets | Internal use software and other noncurrent assets | 299.4 | | | 237.2 | | Internal use software and other noncurrent assets | 340.7 | | | 296.6 | |
| Goodwill | Goodwill | 228.3 | | | 240.5 | | Goodwill | 228.2 | | | 228.2 | |
| Total noncurrent assets | Total noncurrent assets | 2,897.6 | | | 2,688.8 | | Total noncurrent assets | 3,156.3 | | | 2,967.9 | |
| Total Assets | Total Assets | $ | 4,305.9 | | | $ | 3,937.3 | | Total Assets | $ | 4,453.2 | | | $ | 4,318.2 | |
| Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | | | Liabilities and Shareholders’ Equity | | | |
| Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
| Trade accounts payable | Trade accounts payable | $ | 374.9 | | | $ | 331.7 | | Trade accounts payable | $ | 275.5 | | | $ | 276.7 | |
| Accrued salaries, wages, and benefits | Accrued salaries, wages, and benefits | 96.5 | | | 104.5 | | Accrued salaries, wages, and benefits | 65.1 | | | 97.8 | |
| Claims accruals—current | Claims accruals—current | 75.0 | | | 83.9 | | Claims accruals—current | 76.6 | | | 75.5 | |
| Current maturities of debt and finance lease obligations | Current maturities of debt and finance lease obligations | 72.6 | | | 61.4 | | Current maturities of debt and finance lease obligations | 73.9 | | | 73.3 | |
| Other current liabilities | Other current liabilities | 115.2 | | | 108.7 | | Other current liabilities | 103.0 | | | 113.6 | |
| Total current liabilities | Total current liabilities | 734.2 | | | 690.2 | | Total current liabilities | 594.1 | | | 636.9 | |
| Noncurrent Liabilities: | Noncurrent Liabilities: | | | | Noncurrent Liabilities: | | | |
| Long-term debt and finance lease obligations | Long-term debt and finance lease obligations | 140.1 | | | 208.9 | | Long-term debt and finance lease obligations | 142.2 | | | 141.8 | |
| Claims accruals—noncurrent | Claims accruals—noncurrent | 94.4 | | | 88.5 | | Claims accruals—noncurrent | 96.1 | | | 95.2 | |
| Deferred income taxes | Deferred income taxes | 528.9 | | | 451.0 | | Deferred income taxes | 567.7 | | | 538.2 | |
| Other noncurrent liabilities | Other noncurrent liabilities | 70.4 | | | 74.9 | | Other noncurrent liabilities | 104.7 | | | 68.9 | |
| Total noncurrent liabilities | Total noncurrent liabilities | 833.8 | | | 823.3 | | Total noncurrent liabilities | 910.7 | | | 844.1 | |
| Total Liabilities | Total Liabilities | 1,568.0 | | | 1,513.5 | | Total Liabilities | 1,504.8 | | | 1,481.0 | |
| Commitments and Contingencies (Note 12) | Commitments and Contingencies (Note 12) | | | | Commitments and Contingencies (Note 12) | | | |
| Shareholders’ Equity: | Shareholders’ Equity: | | Shareholders’ Equity: | |
| Preferred shares, no par value, 50,000,000 shares authorized, no shares issued or outstanding | Preferred shares, no par value, 50,000,000 shares authorized, no shares issued or outstanding | — | | | — | | Preferred shares, no par value, 50,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
| Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | — | | | — | | Class A common shares, no par value, 250,000,000 shares authorized, 83,029,500 shares issued and outstanding | — | | | — | |
| Class B common shares, no par value, 750,000,000 shares authorized, 95,643,248 and 95,701,868 shares issued, and 94,980,485 and 94,626,740 shares outstanding, respectively | — | | | — | | |
| Class B common shares, no par value, 750,000,000 shares authorized, 94,446,607 and 95,655,907 shares issued, and 94,064,251 and 94,993,144 shares outstanding, respectively | | Class B common shares, no par value, 750,000,000 shares authorized, 94,446,607 and 95,655,907 shares issued, and 94,064,251 and 94,993,144 shares outstanding, respectively | — | | | — | |
| Additional paid-in capital | Additional paid-in capital | 1,579.8 | | | 1,566.0 | | Additional paid-in capital | 1,588.0 | | | 1,584.4 | |
| Retained earnings | Retained earnings | 1,162.0 | | | 857.8 | | Retained earnings | 1,400.8 | | | 1,257.8 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (3.9) | | | — | | Accumulated other comprehensive loss | (4.3) | | | (5.0) | |
| Treasury stock at cost (1,372,039 and no shares) | | Treasury stock at cost (1,372,039 and no shares) | (36.1) | | | — | |
| Total Shareholders’ Equity | Total Shareholders’ Equity | 2,737.9 | | | 2,423.8 | | Total Shareholders’ Equity | 2,948.4 | | | 2,837.2 | |
| Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | $ | 4,305.9 | | | $ | 3,937.3 | | Total Liabilities and Shareholders’ Equity | $ | 4,453.2 | | | $ | 4,318.2 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
| | | | Nine Months Ended September 30, | | Six Months Ended
June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
| Operating Activities: | Operating Activities: | | | | Operating Activities: | | | |
| Net income | Net income | $ | 347.7 | | | $ | 271.3 | | Net income | $ | 175.5 | | | $ | 221.9 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 258.3 | | | 220.5 | | Depreciation and amortization | 185.0 | | | 170.1 | |
| Gains on sales of property and equipment—net | Gains on sales of property and equipment—net | (75.2) | | | (48.0) | | Gains on sales of property and equipment—net | (22.8) | | | (63.8) | |
| Proceeds from lease receipts | Proceeds from lease receipts | 62.3 | | | 54.7 | | Proceeds from lease receipts | 38.8 | | | 41.3 | |
| Deferred income taxes | Deferred income taxes | 72.4 | | | 21.6 | | Deferred income taxes | 29.5 | | | 42.0 | |
| Long-term incentive and share-based compensation expense | Long-term incentive and share-based compensation expense | 12.6 | | | 11.3 | | Long-term incentive and share-based compensation expense | 8.9 | | | 8.8 | |
| Gains on investments in equity securities—net | (15.8) | | | (17.1) | | |
| (Gains) losses on investments in equity securities—net | | (Gains) losses on investments in equity securities—net | (17.7) | | | 10.1 | |
| Other noncash items—net | Other noncash items—net | (15.2) | | | 0.6 | | Other noncash items—net | 0.7 | | | (13.4) | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Receivables | Receivables | (26.5) | | | (112.3) | | Receivables | 5.5 | | | (74.5) | |
| Other assets | Other assets | (53.8) | | | (53.3) | | Other assets | (44.8) | | | (58.2) | |
| Payables | Payables | 5.0 | | | 68.0 | | Payables | (36.0) | | | 35.4 | |
| Claims reserves and other receivables—net | Claims reserves and other receivables—net | 6.3 | | | 1.1 | | Claims reserves and other receivables—net | 2.0 | | | 3.7 | |
| Other liabilities | Other liabilities | 0.2 | | | (22.4) | | Other liabilities | (21.4) | | | 30.3 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 578.3 | | | 396.0 | | Net cash provided by operating activities | 303.2 | | | 353.7 | |
| Investing Activities: | Investing Activities: | | | | Investing Activities: | | | |
| Purchases of transportation equipment | Purchases of transportation equipment | (321.1) | | | (296.9) | | Purchases of transportation equipment | (344.4) | | | (159.0) | |
| Purchases of other property and equipment | Purchases of other property and equipment | (38.4) | | | (33.4) | | Purchases of other property and equipment | (25.3) | | | (22.0) | |
| Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | 101.1 | | | 145.2 | | Proceeds from sale of property and equipment | 71.6 | | | 71.0 | |
| Proceeds from sale of off-lease inventory | Proceeds from sale of off-lease inventory | 19.9 | | | 13.2 | | Proceeds from sale of off-lease inventory | 13.7 | | | 12.8 | |
| Purchases of lease equipment | Purchases of lease equipment | (80.4) | | | (72.8) | | Purchases of lease equipment | (54.1) | | | (50.4) | |
| Proceeds from marketable securities | Proceeds from marketable securities | 4.2 | | | 11.7 | | Proceeds from marketable securities | 4.0 | | | 4.2 | |
| Purchases of marketable securities | Purchases of marketable securities | (4.6) | | | (11.6) | | Purchases of marketable securities | (12.8) | | | (4.6) | |
| Investments in equity securities | (24.1) | | | (5.0) | | |
| Investments in equity securities and equity method investment | | Investments in equity securities and equity method investment | (6.8) | | | (4.1) | |
| Investment in note receivable | | Investment in note receivable | (10.0) | | | — | |
| Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | (28.1) | | | — | | Acquisition of businesses, net of cash acquired | — | | | (28.2) | |
| Net cash used in investing activities | Net cash used in investing activities | (371.5) | | | (249.6) | | Net cash used in investing activities | (364.1) | | | (180.3) | |
| Financing Activities: | Financing Activities: | | | | Financing Activities: | | | |
| Payments of debt and finance lease obligations | Payments of debt and finance lease obligations | (61.3) | | | (0.5) | | Payments of debt and finance lease obligations | (1.7) | | | (60.8) | |
| Dividends paid | Dividends paid | (41.4) | | | (37.2) | | Dividends paid | (31.8) | | | (27.2) | |
| Repurchases of common stock | | Repurchases of common stock | (36.1) | | | — | |
| Other financing activities | Other financing activities | 0.8 | | | — | | Other financing activities | (6.0) | | | 0.8 | |
| Net cash used in financing activities | Net cash used in financing activities | (101.9) | | | (37.7) | | Net cash used in financing activities | (75.6) | | | (87.2) | |
| Net increase in cash and cash equivalents | 104.9 | | | 108.7 | | |
| Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (136.5) | | | 86.2 | |
| Cash and Cash Equivalents: | Cash and Cash Equivalents: | | Cash and Cash Equivalents: | |
| Beginning of period | Beginning of period | 244.8 | | | 395.5 | | Beginning of period | 385.7 | | | 244.8 | |
| End of period | End of period | $ | 349.7 | | | $ | 504.2 | | End of period | $ | 249.2 | | | $ | 331.0 | |
| Additional Cash Flow Information: | Additional Cash Flow Information: | | | | Additional Cash Flow Information: | | | |
| Noncash investing and financing activity: | Noncash investing and financing activity: | | Noncash investing and financing activity: | |
| Transportation and lease equipment purchases in accounts payable | Transportation and lease equipment purchases in accounts payable | $ | 50.4 | | | $ | 43.7 | | Transportation and lease equipment purchases in accounts payable | $ | 47.8 | | | $ | 45.7 | |
| Dividends declared but not yet paid | Dividends declared but not yet paid | 16.1 | | | 14.0 | | Dividends declared but not yet paid | 16.9 | | | 16.0 | |
| Sale of assets in exchange for notes receivable | 2.3 | | | — | | |
| | Noncash equity method investment | | Noncash equity method investment | 3.3 | | | — | |
| Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Interest | Interest | 8.3 | | | 10.0 | | Interest | 4.1 | | | 5.1 | |
| Income taxes—net of refunds | Income taxes—net of refunds | 38.0 | | | 77.7 | | Income taxes—net of refunds | 49.2 | | | 31.1 | |
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total |
| Balance—December 31, 2020 | | $ | — | | | $ | 1,552.2 | | | $ | 502.5 | | | $ | 0.8 | | | $ | 2,055.5 | |
| Net income | | — | | | — | | | 54.8 | | | — | | | 54.8 | |
| Other comprehensive loss | | — | | | — | | | — | | | (0.7) | | | (0.7) | |
| Share-based compensation expense | | — | | | 4.5 | | | — | | | — | | | 4.5 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.6) | | | — | | | (12.6) | |
| Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2021 | | — | | | 1,555.1 | | | 544.7 | | | 0.1 | | | 2,099.9 | |
| Net income | | — | | | — | | | 106.5 | | | — | | | 106.5 | |
| Other comprehensive income | | — | | | — | | | — | | | 0.5 | | | 0.5 | |
| Share-based compensation expense | | — | | | 3.3 | | | — | | | — | | | 3.3 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.5) | | | — | | | (12.5) | |
| Share issuances | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| | | | | | | | | | |
| Balance—June 30, 2021 | | — | | | 1,559.1 | | | 638.7 | | | 0.6 | | | 2,198.4 | |
| Net income | | — | | | — | | | 110.0 | | | — | | | 110.0 | |
| Other comprehensive loss | | — | | | — | | | — | | | (0.3) | | | (0.3) | |
| Share-based compensation expense | | — | | | 3.4 | | | — | | | — | | | 3.4 | |
| Dividends declared at $0.07 per share of Class A and Class B common shares | | — | | | — | | | (12.5) | | | — | | | (12.5) | |
| Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | |
| | | | | | | | | | |
| Balance—September 30, 2021 | | $ | — | | | $ | 1,562.6 | | | $ | 736.2 | | | $ | 0.3 | | | $ | 2,299.1 | |
| | | | | | | | | | |
| | | | Additional Paid-In Capital | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total | | Additional Paid-In Capital | |
| Balance—December 31, 2021 | Balance—December 31, 2021 | | $ | — | | | $ | 1,566.0 | | | $ | 857.8 | | | $ | — | | | $ | 2,423.8 | | Balance—December 31, 2021 | | $ | — | | | $ | 1,566.0 | | $ | 857.8 | | | $ | — | | | $ | — | | | $ | 2,423.8 | |
| Net income | Net income | | — | | | — | | | 92.1 | | | — | | | 92.1 | | Net income | | — | | | — | | 92.1 | | | — | | | — | | | 92.1 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | (1.5) | | | (1.5) | | Other comprehensive loss | | — | | | — | | | — | | | (1.5) | | | — | | | (1.5) | |
| Share-based compensation expense | Share-based compensation expense | | — | | | 5.4 | | | — | | | — | | | 5.4 | | Share-based compensation expense | | — | | | 5.4 | | | — | | | — | | | — | | | 5.4 | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.9) | | | — | | | (14.9) | | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.9) | | | — | | | — | | | (14.9) | |
| Share issuances | Share issuances | | — | | | 0.1 | | | — | | | — | | | 0.1 | | Share issuances | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | Exercise of employee stock options | | — | | | 2.3 | | | — | | | — | | | 2.3 | | Exercise of employee stock options | | — | | | 2.3 | | | — | | | — | | | — | | | 2.3 | |
| Shares withheld for employee taxes | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | (2.4) | | Shares withheld for employee taxes | | — | | | (2.4) | | | — | | | — | | | — | | | (2.4) | |
| Balance—March 31, 2022 | Balance—March 31, 2022 | | — | | | 1,571.4 | | | 935.0 | | | (1.5) | | | 2,504.9 | | Balance—March 31, 2022 | | — | | | 1,571.4 | | | 935.0 | | | (1.5) | | | — | | | 2,504.9 | |
| Net income | Net income | | — | | | — | | | 129.8 | | | — | | | 129.8 | | Net income | | — | | | — | | | 129.8 | | | — | | | — | | | 129.8 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | (1.0) | | | (1.0) | | Other comprehensive loss | | — | | | — | | | — | | | (1.0) | | | — | | | (1.0) | |
| Share-based compensation expense | Share-based compensation expense | | — | | | 3.4 | | | — | | | — | | | 3.4 | | Share-based compensation expense | | — | | | 3.4 | | | — | | | — | | | — | | | 3.4 | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.2) | | | — | | | (14.2) | | Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.2) | | | — | | | — | | | (14.2) | |
| | Exercise of employee stock options | Exercise of employee stock options | | — | | | 0.9 | | | — | | | — | | | 0.9 | | Exercise of employee stock options | | — | | | 0.9 | | | — | | | — | | | — | | | 0.9 | |
| Balance—June 30, 2022 | | Balance—June 30, 2022 | | $ | — | | | $ | 1,575.7 | | | $ | 1,050.6 | | | $ | (2.5) | | | $ | — | | | $ | 2,623.8 | |
| | Balance—June 30, 2022 | | — | | | 1,575.7 | | | 1,050.6 | | | (2.5) | | | 2,623.8 | | |
| | | | Balance—December 31, 2022 | | Balance—December 31, 2022 | | $ | — | | | $ | 1,584.4 | | | $ | 1,257.8 | | | $ | (5.0) | | | $ | — | | | $ | 2,837.2 | |
| Net income | | Net income | | — | | | — | | | 98.0 | | | — | | | — | | | 98.0 | |
| Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 0.8 | | | — | | | 0.8 | |
| Share-based compensation expense | | Share-based compensation expense | | — | | | 5.1 | | | — | | | — | | | — | | | 5.1 | |
| Dividends declared at $0.09 per share of Class A and Class B common shares | | Dividends declared at $0.09 per share of Class A and Class B common shares | | — | | | — | | | (16.4) | | | — | | | — | | | (16.4) | |
| Share issuances | | Share issuances | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | |
| Exercise of employee stock options | | Exercise of employee stock options | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | |
| Shares withheld for employee taxes | | Shares withheld for employee taxes | | — | | | (6.1) | | | — | | | — | | | — | | | (6.1) | |
| Balance—March 31, 2023 | | Balance—March 31, 2023 | | — | | | 1,583.6 | | | 1,339.4 | | | (4.2) | | | — | | | 2,918.8 | |
| Net income | Net income | | — | | | — | | | 125.8 | | | — | | | 125.8 | | Net income | | — | | | — | | | 77.5 | | | — | | | — | | | 77.5 | |
| Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | (1.4) | | | (1.4) | | Other comprehensive loss | | — | | | — | | | — | | | (0.1) | | | — | | | (0.1) | |
| Share-based compensation expense | Share-based compensation expense | | — | | | 4.1 | | | — | | | — | | | 4.1 | | Share-based compensation expense | | — | | | 4.4 | | | — | | | — | | | — | | | 4.4 | |
| Dividends declared at $0.08 per share of Class A and Class B common shares | | — | | | — | | | (14.4) | | | — | | | (14.4) | | |
| Dividends declared at $0.09 per share of Class A and Class B common shares | | Dividends declared at $0.09 per share of Class A and Class B common shares | | — | | | — | | | (16.1) | | | — | | | — | | | (16.1) | |
| Repurchases of common stock | | Repurchases of common stock | | — | | | — | | | — | | | — | | | (36.1) | | | (36.1) | |
| | Balance—September 30, 2022 | | $ | — | | | $ | 1,579.8 | | | $ | 1,162.0 | | | $ | (3.9) | | | $ | 2,737.9 | | |
| Balance—June 30, 2023 | | Balance—June 30, 2023 | | $ | — | | | $ | 1,588.0 | | | $ | 1,400.8 | | | $ | (4.3) | | | $ | (36.1) | | | $ | 2,948.4 | |
|
See notes to consolidated financial statements (unaudited).
SCHNEIDER NATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
Nature of Operations
Schneider National, Inc. and its subsidiaries (together “Schneider,” the “Company,” “we,” “us,” or “our”) are among the largest providers of surface transportation and logistics solutions in North America. We offer a multimodal portfolio of services and possess an array of capabilities and resources that leverage artificial intelligence, data science, and analytics to provide innovative solutions that coordinate the timely, safe, and effective movement of customer products timely, safely, and effectively.products. The Company offers truckload, intermodal, and logistics services to a diverse customer base throughout the continental United States,U.S., Canada, and Mexico, thus adding value to their supply chains.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with GAAP and the rules and regulations of the SEC applicable to quarterly reports on Form 10-Q. Therefore, these consolidated financial statements and footnotes do not include all disclosures required by GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. Financial results for an interim period are not necessarily indicative of the results for a full year. All intercompany transactions have been eliminated in consolidation.
In the opinion of management, these statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for the fair presentation of our financial results for the interim periods presented.
Government Grants
For the three and six months ended June 30, 2023, the Company placed assets in service that were covered by grants from the Environmental Protection Agency’s Targeted Airshed Grant (administered by the California Air Resources Board) and the South Coast Air Quality Management District’s Joint Electric Truck Scaling Initiative. Under the former, funds were paid directly to the manufacturer and reflected as a reduction in the invoiced amount, and under the latter, the Company paid the full amount up front and will apply for reimbursement of qualified expenses. As of June 30, 2023, the Company believes the above conditions have been met and during the three and six months ended June 30, 2023, depreciation and amortization expense was reduced by $0.1 million and $0.2 million, respectively, in the consolidated statements of comprehensive income. As of June 30, 2023, the Company’s consolidated balance sheets included $11.3 million of grant receivables within other receivables and $1.4 million and $8.2 million in deferred grant income within other current liabilities and other noncurrent liabilities, respectively.
Property and Equipment
Gains and losses on property and equipment are recognized at the time of sale or disposition and are classified in operating supplies and expenses—net on the consolidated statements of comprehensive income. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, we recognized $11.4$10.5 million and $32.0$2.9 million of net gains on the sale of property and equipment, respectively, and for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, we recognized $75.2$22.8 million and $48.0$63.8 million of net gains on the sale of property and equipment, respectively. Net gains during the nine months ended September 30, 2022 were primarily related to the sale of the Company’s Canadian facility.
Accounting Standards Recently Adopted
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This standard requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, International Financial Reporting Standards guidance in International Accounting Standards 20 or guidance on contributions for not-for-profit entities in ASC 958-605), including information about the nature and significant terms and conditions of the transaction, as well as the amounts and specific financial statement line items affected by the transaction. ASU 2021-10 is effective for us beginning with our December 31, 2022 financial statements. The adoption of this standard did not have a material impact on our consolidated financial statements or disclosures.
2. ACQUISITIONS
deBoer Transportation, Inc.
We entered into a Securities Purchase Agreement, dated June 7, 2022, to acquireacquired 100% of the outstanding equity of deBoer on June 7, 2022 for a final purchase price of approximately $34.6 million inclusive of certain cash and net working capital adjustments. The purchase price allocation for deBoer was considered final as of December 31, 2022 and resulted in $6.1 million of goodwill being recorded within the Truckload reportable segment. deBoer was a regional, dedicated carrier headquartered in Blenker, WI. TheWI, and the acquisition provided Schneiderus the opportunity to expand our tractor and trailer fleet primarily within our dedicated Truckload operations. Operating results for deBoer are
included in our consolidated results of operations as well as our company driver capacity. Duringfrom the third quarter, the Company successfully transitioned equipment and employees from deBoer to Schneider, deBoeracquisition date through July 2022 when their operations ceased and drivers and equipment were deployed primarily within our Truckload segment.
The aggregate purchase price of the acquisition was approximately $34.6 million inclusive of certain cash and net working capital adjustments, and the assets acquired consisted primarily of rolling stock. The acquisition was accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized on the consolidated
balance sheets at their fair values as of the acquisition date. The fair values of consideration transferred and net assets acquired were determined using Level 3 inputs, and the excess of the purchase price over the estimated fair value of the net assets resulted in $7.7 million of goodwill being recorded within the Truckload reportable segment at the time of acquisition. During the third quarter of 2022, $0.9 million of purchase price adjustments were made relating to deferred taxes and certain working capital amounts resulting in an adjusted goodwill balance of $6.8 million as of September 30, 2022. Certain amounts recorded in connection with the acquisition are still considered preliminary as we continue to gather the necessary information to finalize our fair value estimates and provisional amounts.
Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, respectively, and were included in other general expenses in the Company’s consolidated statements of comprehensive income.
Operating results for deBoer are included in our consolidated results of operations from the acquisition date. Pro forma information for this acquisition is not provided as it did not have a material impact on the Company’s consolidated operating results.
Midwest Logistics Systems, Ltd.
We entered into a Securities Purchase Agreement, datedOn December 31, 2021, to acquirewe acquired 100% of the outstanding equity of MLS, a dedicated trucking company based in Celina, OH, and certain affiliated entities holding assets comprising substantially all of MLS’s business. MLS is a premier dedicated carrier in the central U.S. that we believe complements our growing dedicated operations.
The aggregate purchase price of the acquisition was approximately $268.8 million inclusive of $5.7 million incertain net working capital and other post-acquisition adjustments received in the second quarteradjustments. The purchase price allocation for MLS was considered final as of December 31, 2022 and a deferred payment of $3.2 million maderesulted in January 2022. Proceeds from the total purchase consideration were used to settle $26.9$104.3 million of MLS’s outstanding debt as of the acquisition date.
The acquisition of MLS was accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized on the consolidated balance sheets at their fair values as of the acquisition date. These inputs represent Level 3 measurements in the fair value hierarchy and required significant judgments and estimates at the time of valuation. Fair value estimates of acquired property and equipment were based on an independent appraisal, giving consideration to the highest and best use of the assets. Key assumptions used in the transportation equipment appraisals were based on the market approach, while key assumptions used in the land, buildings and improvements, and other property and equipment appraisals were based on a combination of the income (direct capitalization) and sales comparison approaches, as appropriate.
The excess of the purchase price over the estimated fair values of assets acquired and liabilities assumed wasgoodwill being recorded as goodwill within the Truckload reportable segment. The goodwill is attributable to expected synergies and growth opportunities within our dedicated business and is expected to be deductibleOperating results for tax purposes.
Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were $1.9 million and wereMLS are included in our consolidated results of operations beginning January 1, 2022.
Subsequent Event - M & M Transport Services, LLC
On August 1, 2023, we acquired 100% of the membership interest in M&M for approximately $225.0 million, excluding cash and other general expensesworking capital adjustments. M&M is a leading truckload dedicated carrier located primarily in New England with nearly 500 tractors and 1,900 trailers. We are in the Company’s consolidated statementsprocess of comprehensive incomecompleting the initial accounting for the year ended December 31, 2021.
The following table summarizes the preliminary purchase price allocation for MLS, including any adjustments during the measurement period.
| | | | | | | | | | | | | | | | | | | | |
Recognized amounts of identifiable assets acquired and liabilities assumed (in millions) | | December 31, 2021
Opening Balance Sheet | | Adjustments | | Adjusted December 31, 2021 Opening Balance Sheet |
| Cash and cash equivalents | | $ | — | | | $ | 1.8 | | | $ | 1.8 | |
| Trade accounts receivable—net of allowance | | 18.6 | | | (6.1) | | | 12.5 | |
| Other receivables | | 0.9 | | | 1.5 | | | 2.4 | |
| Prepaid expenses and other current assets | | 1.6 | | | — | | | 1.6 | |
| Net property and equipment | | 148.9 | | | (0.8) | | | 148.1 | |
| Internal use software and other noncurrent assets | | — | | | 11.7 | | | 11.7 | |
| Goodwill | | 122.7 | | | (19.0) | | | 103.7 | |
| Total assets acquired | | 292.7 | | | (10.9) | | | 281.8 | |
| | | | | | |
| Trade accounts payable | | 1.8 | | | 1.6 | | | 3.4 | |
| Accrued salaries, wages, and benefits | | 1.7 | | | 0.9 | | | 2.6 | |
| Claims accruals—current | | 7.5 | | | (3.0) | | | 4.5 | |
| Other current liabilities | | 7.2 | | | (3.9) | | | 3.3 | |
| Deferred income taxes | | — | | | (1.1) | | | (1.1) | |
| Other noncurrent liabilities | | — | | | 0.3 | | | 0.3 | |
| Total liabilities assumed | | 18.2 | | | (5.2) | | | 13.0 | |
| | | | | | |
| Net assets acquired | | $ | 274.5 | | | $ | (5.7) | | | $ | 268.8 | |
The above adjustments made during the measurement period were primarily related to working capital, property and equipment, leases, claims accruals, deferred taxes, and intangible assets. The fair values of identifiable intangible assets, including customer relationships and trademarks, were based on valuations using income-based approaches. No material statement of comprehensive income effects were identified with these adjustments. While we may continue to adjust provisional amounts through December 31, 2022, we do not anticipate any material adjustments.
Combined unaudited pro forma operating revenues of the Company and MLS would have been approximately $1,495.0 million, and $4,189.0 million, during the three and nine months ended September 30, 2021, respectively, and our earnings for the same periods would not have been materially different.acquisition, as such, required disclosures will be presented in future periods.
3. LEASES
As Lessee
We lease real estate and equipment under operating and finance leases. Our real estate operating leases include operating centers, distribution warehouses, offices, and drop yards. Our non-real estate operating leases and finance leases include transportation, office, yard, warehouse, and warehouseother equipment, in addition to truck washes. The majority of our leases include an option to extend the lease, and a small number include an option to terminate the lease early, which may include a termination payment.
Additional information related to our leases is as follows:
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows for operating leases | | $ | 24.6 | | | $ | 23.3 | |
| Operating cash flows for finance leases | | 0.1 | | | — | |
| Financing cash flows for finance leases | | 1.3 | | | 0.5 | |
| | | | |
| Right-of-use assets obtained in exchange for new lease liabilities | | | | |
| Operating leases | | $ | 17.8 | | | $ | 23.7 | |
| Finance leases | | 3.8 | | | 1.2 | |
| | | | | | | | | | | | | | |
| | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of lease liabilities | | | | |
| Operating cash flows for operating leases | | $ | 18.0 | | | $ | 16.4 | |
| Operating cash flows for finance leases | | 0.2 | | | 0.1 | |
| Financing cash flows for finance leases | | 1.7 | | | 0.8 | |
| | | | |
| Right-of-use assets obtained in exchange for new lease liabilities | | | | |
| Operating leases | | $ | 29.8 | | | $ | 9.7 | |
| Finance leases | | 2.7 | | | 2.3 | |
As of SeptemberJune 30, 2022,2023, we had signed leases that had not yet commenced totaling $23.7$5.3 million. These leases will commence during the remainder of 2022 or the beginning of 2023 and have lease terms of one to sevenfive years.
As Lessor
We finance various types of transportation-related equipment for independent third parties under lease contracts, which are generally for one to three years and are accounted for as sales-type leases with fully guaranteed residual values. Our leases contain an option for the lessee to return, extend, or purchase the equipment at the end of the lease term for the guaranteed contract residual amount. This contract residual amount is estimated to approximate the fair value of the equipment. Lease payments primarily include base rentals and guaranteed residual values.
As of SeptemberJune 30, 20222023 and December 31, 2021,2022, investments in lease receivables were as follows:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | December 31, 2021 |
| Future minimum payments to be received on leases | | $ | 204.6 | | | $ | 193.9 | |
| Guaranteed residual lease values | | 128.2 | | | 123.3 | |
| Total minimum lease payments to be received | | 332.8 | | | 317.2 | |
| Unearned income | | (51.3) | | | (46.5) | |
| Net investment in leases | | $ | 281.5 | | | $ | 270.7 | |
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2023 | | December 31, 2022 |
| Future minimum payments to be received on leases | | $ | 191.4 | | | $ | 198.4 | |
| Guaranteed residual lease values | | 120.2 | | | 126.1 | |
| Total minimum lease payments to be received | | 311.6 | | | 324.5 | |
| Unearned income | | (49.7) | | | (50.2) | |
| Net investment in leases | | $ | 261.9 | | | $ | 274.3 | |
Prior to entering a lease contract, we assess the credit quality of the potential lessee using credit checks and other relevant factors, ensuring that the inherent credit risk is consistent with our existing lease portfolio. Given our leases have fully guaranteed residual values and we can take possession of the transportation-related equipment in the event of default, we do not categorize net investment in leases by different credit quality indicators upon origination. We monitor our lease portfolio weekly by tracking amounts past due, days past due, and outstanding maintenance account balances, including performing subsequent credit checks as needed. Our net investment in leases with any portion past due as of SeptemberJune 30, 20222023 was $39.5$58.8 million, which includes both current and future lease payments.
Lease payments on our lease receivables are generally due on a weekly basis and are classified as past due when the weekly payment is not received by its due date. As of SeptemberJune 30, 2022,2023, our lease payments past due were $3.9$3.3 million.
The table below provides additional information on our sales-type leases. Revenue and cost of goods sold are recorded in operating revenues and operating supplies and expenses—net in the consolidated statements of comprehensive income, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | | $ | 53.1 | | | $ | 57.2 | | | $ | 146.2 | | | $ | 169.8 | |
| Cost of goods sold | | (43.5) | | | (49.0) | | | (121.0) | | | (146.1) | |
| Operating profit | | $ | 9.6 | | | $ | 8.2 | | | $ | 25.2 | | | $ | 23.7 | |
| | | | | | | | |
| Interest income on lease receivable | | $ | 9.4 | | | $ | 8.5 | | | $ | 27.3 | | | $ | 23.6 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue | | $ | 49.8 | | | $ | 50.8 | | | $ | 110.6 | | | $ | 93.1 | |
| Cost of goods sold | | (42.0) | | | (41.5) | | | (93.4) | | | (77.5) | |
| Operating profit | | $ | 7.8 | | | $ | 9.3 | | | $ | 17.2 | | | $ | 15.6 | |
| | | | | | | | |
| Interest income on lease receivable | | $ | 9.3 | | | $ | 9.2 | | | $ | 18.7 | | | $ | 17.9 | |
| | | | | | | | |
4. REVENUE RECOGNITION
Disaggregated Revenues
The majority of our revenues are related to transportation and have similar characteristics.
MLS and deBoer revenues since the acquisition dates are included within Transportation revenues, consistent with the remainder of our Truckload segment. The following table summarizes our revenues by type of service.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
Disaggregated Revenues (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Transportation | | $ | 1,253.1 | | | $ | 1,612.9 | | | $ | 2,570.1 | | | $ | 3,112.1 | |
| Logistics Management | | 40.9 | | | 78.9 | | | 90.7 | | | 154.6 | |
| Other | | 52.5 | | | 55.1 | | | 114.4 | | | 100.7 | |
| Total operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
Disaggregated Revenues (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Transportation | | $ | 1,551.1 | | | $ | 1,326.3 | | | $ | 4,663.2 | | | $ | 3,700.4 | |
| Logistics Management | | 66.5 | | | 56.4 | | | 221.1 | | | 149.7 | |
| Other | | 57.7 | | | 61.8 | | | 158.4 | | | 183.8 | |
| Total operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | |
Quantitative Disclosure
The following table provides information related to transactions and expected timing of revenue recognition for performance obligations that are fixed in nature and relate to contracts with terms greater than one year as of the date shown.
| | | | | | | | |
Remaining Performance Obligations (in millions) | | SeptemberJune 30, 20222023 |
| Expected to be recognized within one year | | |
| Transportation | | $ | 16.916.8 | |
| Logistics Management | | 10.814.0 | |
| Expected to be recognized after one year | | |
| Transportation | | 28.916.7 | |
| Logistics Management | | 9.711.9 | |
| Total | | $ | 66.359.4 | |
This disclosure does not include revenuerevenues related to performance obligations that are part of a contract with an original expected duration of one year or less, nor does it include expected consideration related to performance obligations for which the Company elects to recognize revenue in the amount it has a right to invoice (e.g., usage-based pricing terms).
The following table provides information related to contract balances associated with our contracts with customers as of the dates shown.
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | September 30, 2022 | | December 31, 2021 |
| Other current assets—Contract assets | | $ | 36.2 | | | $ | 33.8 | |
| Other current liabilities—Contract liabilities | | 4.0 | | | 3.2 | |
| | | | | | | | | | | | | | |
Contract Balances (in millions) | | June 30, 2023 | | December 31, 2022 |
| Other current assets—Contract assets | | $ | 25.8 | | | $ | 27.0 | |
| Other current liabilities—Contract liabilities | | 3.9 | | | 2.6 | |
We generally receive payment within 40 days of completion of performance obligations. Contract assets in the table above relate to revenue in transit at the end of the reporting period. Contract liabilities relate to amounts that customers paid in advance of the associated services.
Non-monetary Consideration
Occasionally we provide freight movements to customers in exchange for non-monetary services. The fair value of non-monetary consideration on these freight movements is included in operating revenues on the consolidated statements of comprehensive income and consists primarily of transportation equipment. The amount of operating revenuesThere was no revenue recorded for freight movements in exchange for non-monetary consideration for the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, $6.8 million and $13.3 million was recorded for these services was $2.3 million and $15.6 million during the three and nine months ended September 30, 2022, respectively, and $1.3 million during the three and nine months ended September 30, 2021.services.
5. FAIR VALUE
Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability. Inputs to valuation techniques used to measure fair value fall into three broad levels (Levels 1, 2, and 3) as follows:
Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date.
Level 2—Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities.
Level 3—Unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The table below sets forth the Company’s financial assets that are measured at fair value on a recurring, monthly basis in accordance with ASC 820.
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | September 30, 2022 | | December 31, 2021 |
Equity investment in TuSimple (1) | | 1 | | $ | 2.7 | | | $ | 12.7 | |
Marketable securities (2) | | 2 | | 44.6 | | | 49.3 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value |
| (in millions) | | Level in Fair
Value Hierarchy | | June 30, 2023 | | December 31, 2022 |
Equity investment in TuSimple (1) | | 1 | | $ | 0.6 | | | $ | 0.6 | |
Marketable securities (2) | | 2 | | 54.8 | | | 45.9 | |
(1)Our equity investment in TuSimple is classified as Level 1 in the fair value hierarchy as shares of TuSimple’s Class A common stock are traded on the NASDAQ. See Note 6, Investments, for additional information.
(2)Marketable securities are classified as Level 2 in the fair value hierarchy as they are valued based on quoted prices for similar assets in active markets or quoted prices for identical or similar assets in markets that are not active. See Note 6, Investments, for additional information.
The fair value of the Company’s debt was $197.3$199.8 million and $276.7$199.1 million as of SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The carrying value of the Company’s debt was $205.0 million and $265.0 million as of Septemberboth June 30, 20222023 and December 31, 2021, respectively.2022. The fair value of our debt was calculated using a fixed rate debt portfolio with similar terms and maturities, which is based on the borrowing rates available to us in the applicable period. This valuation used Level 2 inputs.
The recorded values of cash, trade accounts receivable, lease receivables, and trade accounts payable approximate fair values.
As part of the MLS and deBoer acquisitions, certain assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. Refer to Note 2, Acquisitions, for further details.
6. INVESTMENTS
Marketable Securities
Our marketable securities are classified as available-for-sale and carried at fair value in current assets on the consolidated balance sheets. While our intent is to hold our securities to maturity, sudden changes in the market or our liquidity needs may cause us to sell certain securities in advance of their maturity date.
Any unrealized gains and losses, net of tax, are included as a component of accumulated other comprehensive income on the consolidated balance sheets, unless we determine that the amortized cost basis is not recoverable. If we determine that the amortized cost basis of the impaired security is not recoverable, we recognize the credit loss by increasing the allowance for those losses. We did not have an allowance for credit losses on our marketable securities as of SeptemberJune 30, 20222023 or December 31, 2021.2022. Cost basis is determined using the specific identification method.
The following table presents the maturities and values of our marketable securities as of the dates shown.
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| | | September 30, 2022 | | December 31, 2021 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 14 to 101 | | $ | 20.0 | | | $ | 17.2 | | | $ | 19.9 | | | $ | 19.6 | |
| | | | | | | | | | |
| Corporate debt securities | | 2 to 60 | | 17.0 | | | 15.8 | | | 20.3 | | | 20.4 | |
| State and municipal bonds | | 4 to 157 | | 12.4 | | | 11.6 | | | 9.1 | | | 9.3 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 49.4 | | | $ | 44.6 | | | $ | 49.3 | | | $ | 49.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2023 | | December 31, 2022 |
| (in millions, except maturities in months) | | Maturities | | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| U.S. treasury and government agencies | | 5 to 92 months | | $ | 24.9 | | | $ | 22.3 | | | $ | 21.9 | | | $ | 19.3 | |
| | | | | | | | | | |
| Corporate debt securities | | 1 to 118 months | | 21.0 | | | 19.9 | | | 16.0 | | | 14.9 | |
| State and municipal bonds | | 12 to 148 months | | 13.2 | | | 12.6 | | | 12.4 | | | 11.7 | |
| | | | | | | | | | |
| Total marketable securities | | | | $ | 59.1 | | | $ | 54.8 | | | $ | 50.3 | | | $ | 45.9 | |
Equity Investments without Readily Determinable Fair Values
The Company’s primary strategic equity investments without readily determinable fair values include PSI,Platform Science, Inc., a provider of telematics and fleet management tools,tools; MLSI, a transportation technology development company,company; and ChemDirect, a business to business digital marketplace for the chemical industry. These investments are being accounted for under ASC 321, Investments - Equity Securities, using the measurement alternative, and their combined values as of SeptemberJune 30, 20222023 and December 31, 20212022 were $86.0$108.7 million and $36.2$86.0 million, respectively. If the Company identifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value as of the date the observable transaction occurred using Level 3 inputs. In addition to our investment in MLSI, we also hold a $10.0 million note receivable from MLSI as of June 30, 2023. The note was funded during the first quarter of 2023, is subject to interest over its term, and matures in March 2030.
As of SeptemberJune 30, 2022,2023, our cumulative upward adjustments were $52.0$69.7 million. The following table summarizes the activity related to these equity investments during the periods presented.
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Investment in equity securities | | $ | 20.0 | | | $ | — | | | $ | 24.0 | | | $ | — | |
| | | | | | | | |
Upward adjustments (1) | | 25.8 | | | 9.0 | | | 25.8 | | | 9.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Investment in equity securities | | $ | — | | | $ | — | | | $ | 5.0 | | | $ | 4.0 | |
| | | | | | | | |
Upward adjustments (1) | | — | | | — | | | 17.7 | | | — | |
(1)Our updated investment valuesvalue in 2022 and 2021 were2023 was determined using thea hybrid backsolve method, a valuation approach that primarily uses an option pricing modelincorporating both IPO and M&A scenarios to estimate the value shares based on the price paid for recently issued shares.
Equity Investments with Readily Determinable Fair Values
In 2021, the Company purchased a $5.0 million non-controlling interest in TuSimple, a global self-driving technology company. Upon completion of its IPO in April 2021, our investment in TuSimple was converted into Class A common shares and is now being accounted for under ASC 321, Investments - Equity Securities. Our pre-tax net gains were not material for the three and six months ended June 30, 2023. In the three and ninesix months ended SeptemberJune 30, 2022, the Company recognized a pre-tax net gainlosses of $0.1$1.8 million and a pre-tax net loss of $10.0 million on its investment in TuSimple, respectively. In the three and nine months ended September 30, 2021, the Company recognized a pre-tax net loss of $12.1 million and a pre-tax net gain of $8.1$10.1 million, respectively. See Note 5, Fair Value, for additional information on the fair value of our investment in TuSimple.
Equity Method Investment
All of our equity investments, as well as our note receivable from MLSI, are included in internal use software and other noncurrent assets on the consolidated balance sheets with subsequent gainssheets. Gains or losses on our equity investments are recognized within other expenses (income)—net on the consolidated statements of comprehensive income.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of acquisitions over the fair value of the identifiable net assets acquired. The following table shows changes to ourOur goodwill balances by segment during the period ended Septemberbalance as of June 30, 2022.
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Truckload | | Logistics | | Total |
| Balance at December 31, 2021 | | $ | 226.3 | | | $ | 14.2 | | | $ | 240.5 | |
| Acquisition (see Note 2) | | 7.7 | | | — | | | 7.7 | |
| Acquisition adjustments (see Note 2) | | (19.9) | | | — | | | (19.9) | |
| | | | | | |
| Balance at September 30, 2022 | | $ | 214.1 | | | $ | 14.2 | | | $ | 228.3 | |
During the nine months ended September 30, 2022, we recorded goodwill in conjunction with the acquisition of deBoer, and during the three and nine months ended September 30, 2022, we made measurement period adjustments related to the acquisitions of deBoer and MLS, both of which were recorded within the Truckload segment. Refer to Note 2, Acquisitions, for further details.
At September 30, 20222023 and December 31, 2021, we2022 was $228.2 million and was comprised of $214.0 million and $14.2 million in our Truckload and Logistics segments, respectively. As of both June 30, 2023 and December 31, 2022, our Truckload segment had accumulated goodwill impairment charges of $53.2 million, which consisted of $34.6 million and $18.6 million in our Truckload segment and Other, respectively.million.
The identifiable finite lived intangible assets other than goodwill listed below are included in internal use software and other noncurrent assets on the consolidated balance sheets and relate to the acquisition of MLS. Our customer relationships and trademarks are amortized over a weighted-average amortization period of ten years. Refer to Note 2, Acquisitions, for further details.
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| | September 30, 2022 |
| (in millions) | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount |
| Customer relationships | | $ | 3.2 | | | $ | 0.2 | | | $ | 3.0 | |
| Trademarks | | 6.8 | | | 0.5 | | | 6.3 | |
| Total intangible assets | | $ | 10.0 | | | $ | 0.7 | | | $ | 9.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| (in millions) | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount | | Gross
Carrying
Amount | | Accumulated Amortization | | Net
Carrying
Amount |
| Customer relationships | | $ | 3.2 | | | $ | 0.5 | | | $ | 2.7 | | | $ | 3.2 | | | $ | 0.3 | | | $ | 2.9 | |
| Trademarks | | 6.8 | | | 1.0 | | | 5.8 | | | 6.8 | | | 0.7 | | | 6.1 | |
| Total intangible assets | | $ | 10.0 | | | $ | 1.5 | | | $ | 8.5 | | | $ | 10.0 | | | $ | 1.0 | | | $ | 9.0 | |
Amortization expense for intangible assets was $0.2 million and $0.7$0.5 million for the three and ninesix months ended SeptemberJune 30, 2022, respectively.2023, respectively, and $0.5 million for the three and six months ended June 30, 2022.
Estimated future amortization expense related to intangible assets is as follows:
| | | | | | | | |
| (in millions) | | |
| Remaining 2022 | | $ | 0.3 | |
| 2023 | | 1.0 | |
| 2024 | | 1.0 | |
| 2025 | | 1.0 | |
| 2026 | | 1.0 | |
| 2027 and thereafter | | 5.0 | |
| Total | | $ | 9.3 | |
| | | | | | | | |
| (in millions) | | June 30, 2023 |
| Remaining 2023 | | $ | 0.5 | |
| 2024 | | 1.0 | |
| 2025 | | 1.0 | |
| 2026 | | 1.0 | |
| 2027 | | 1.0 | |
| 2028 and thereafter | | 4.0 | |
| Total | | $ | 8.5 | |
8. DEBT AND CREDIT FACILITIES
As of SeptemberJune 30, 20222023 and December 31, 2021,2022, debt included the following: | | | | | | | | | | | | | | |
| (in millions) | | June 30, 2023 | | December 31, 2022 |
| Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.64% and 3.93% for 2023 and 2022, respectively | | $ | 205.0 | | | $ | 205.0 | |
| | | | |
| Current maturities | | (70.0) | | | (70.0) | |
| | | | |
| Long-term debt | | $ | 135.0 | | | $ | 135.0 | |
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | December 31, 2021 |
| Unsecured senior notes: principal maturities ranging from 2023 through 2025; interest payable in semiannual installments through the same timeframe; weighted average interest rate of 3.90% and 3.61% for 2022 and 2021, respectively | | $ | 205.0 | | | $ | 265.0 | |
| | | | |
| Current maturities | | (70.0) | | | (60.0) | |
| | | | |
| Long-term debt | | $ | 135.0 | | | $ | 205.0 | |
Our Credit Agreement (the “2018“2022 Credit Facility”) provides borrowing capacity of $250.0 million and allows us to request an additional increase in total commitment by up to $150.0 million, for a total potential commitment of $400.0 million through August 2023.November 2027. The agreement also provides a sublimit of $100.0 million to be used for the issuance of letters of credit. We had no outstanding borrowings under this agreement as of SeptemberJune 30, 20222023 or December 31, 2021.2022. Standby letters of credit under this agreement amounted to $0.1 million and $3.9 million for Septemberboth June 30, 20222023 and December 31, 2021, respectively,2022 and were primarily related to the requirements of certain of our real estate leases. The Company plans to renew the 2018 Credit Facility Agreement in the fourth quarter of 2022.
WeWe also have a Receivables Purchase Agreement (the “2021 Receivables Purchase Agreement”), which allows us to borrow funds against qualifyingqualifying trade receivables at rates based on one-month LIBOR up to $150.0 million and provides for the issuance of standby letters of credit through July 2024. During the second quarter, the agreement was amended to update the benchmark reference rate to the one-month Term SOFR from the one month LIBOR rate. We had no outstanding borrowings under this facility at Septemberas of June 30, 20222023 or December 31, 2021. At September2022. As of June 30, 20222023 and December 31, 2021,2022, standby letters of credit under this agreement amounted to $77.1$77.5 million and $70.3$77.1 million, respectively, and were primarily related to the requirements of certain of our insurance obligations.
9. INCOME TAXES
Our effective income tax rate was 25.0%24.9% and 25.2%24.8% for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and 25.0%24.5% and 25.2%25.1% for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.respectively . In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate adjusted for discrete items. This rate is based on our expected annual income, statutory tax rates, and best estimates of nontaxable and nondeductible income and expense items.
10. COMMON EQUITY
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | | |
| Net income available to common shareholders | | $ | 125.8 | | | $ | 110.0 | | | $ | 347.7 | | | $ | 271.3 | |
| | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted average common shares outstanding | | 178.0 | | | 177.7 | | | 177.9 | | | 177.5 | |
| Dilutive effect of share-based awards and options outstanding | | 0.7 | | | 0.2 | | | 0.7 | | | 0.3 | |
Weighted average diluted common shares outstanding (1) | | 178.7 | | | 177.9 | | | 178.6 | | | 177.8 | |
| | | | | | | | |
| Basic earnings per common share | | $ | 0.71 | | | $ | 0.62 | | | $ | 1.95 | | | $ | 1.53 | |
| Diluted earnings per common share | | 0.70 | | | 0.62 | | | 1.95 | | | 1.53 | |
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| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except per share data) | | 2023 | | 2022 | | 2023 | | 2022 |
| Numerator: | | | | | | | | |
| Net income available to common shareholders | | $ | 77.5 | | | $ | 129.8 | | | $ | 175.5 | | | $ | 221.9 | |
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| Denominator: | | | | | | | | |
| Weighted average common shares outstanding | | 178.1 | | | 178.0 | | | 178.1 | | | 177.8 | |
| Dilutive effect of share-based awards and options outstanding | | 0.6 | | | 0.5 | | | 0.8 | | | 0.7 | |
Weighted average diluted common shares outstanding (1) | | 178.7 | | | 178.5 | | | 178.9 | | | 178.5 | |
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| Basic earnings per common share | | $ | 0.44 | | | $ | 0.73 | | | $ | 0.99 | | | $ | 1.25 | |
| Diluted earnings per common share | | 0.43 | | | 0.73 | | | 0.98 | | | 1.24 | |
(1)Weighted average diluted common shares outstanding may not sum due to rounding.
The calculation of diluted earnings per share excluded 0.3 million and 0.5 million share-based awards and options that had an anti-dilutive effect for the three and ninesix months ended SeptemberJune 30, 20222023 and 0.80.6 million share-based awards and options that had an anti-dilutive effect for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively.
Common Shares Outstanding
As of both June 30, 2023 and December 31, 2022 we had 83,029,500 shares of Class A common stock outstanding. There were no changes to the number of shares of Class A common stock outstanding for the three and six months ended June 30, 2023 and 2022.
The following table shows changes to our Class B common shares outstanding for the three and six months ended June 30, 2023 and 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Outstanding at beginning of period | | 95,388,727 | | | 94,890,562 | | | 94,993,144 | | | 94,626,740 | |
| Repurchases of common stock | | (1,372,039) | | | — | | | (1,372,039) | | | — | |
| Share issuances | | 47,563 | | | 44,870 | | | 681,423 | | | 303,393 | |
| Exercise of employee stock options | | — | | | 42,908 | | | 6,000 | | | 140,328 | |
| Shares withheld for employee taxes | | — | | | — | | | (244,277) | | | (92,121) | |
| Outstanding at end of period | | 94,064,251 | | | 94,978,340 | | | 94,064,251 | | | 94,978,340 | |
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In January 2023, our Board approved a share repurchase program under which the Company is authorized to repurchase up to $150.0 million of its Class A and/or Class B common shares. The program does not obligate the Company to repurchase a minimum number of shares and is intended to help offset the dilutive effect of equity grants to employees over time. Under this program, the Company may repurchase shares in privately negotiated and/or open market transactions. As of June 30, 2023, the Company has repurchased $36.1 million of the $150.0 million authorized under the repurchase program.
Subsequent Event - Dividends Declared
In OctoberJuly of 2022,2023, the Board of Directors declared a quarterly cash dividend for the fourththird fiscal quarter of 20222023 in the amount of $0.08$0.09 per share to holders of our Class A and Class B common stock. The dividend is payable to shareholders of record at the close of business on December 9, 2022September 8, 2023 and will be paid on JanuaryOctober 10, 2023.
11. SHARE-BASED COMPENSATION
We grant various equity-based awards relating to Class B common stock to employees under our 2017 Omnibus Incentive Plan (“the Plan”). These awards have historically consisted of restricted shares, restricted stock units (“RSUs”),RSUs, performance-based restricted shares (“performance shares”), performance-based restricted stock units (“PSUs”),PSUs, and non-qualified stock options. Performance shares and PSUs granted prior to 2021 are earned based on attainment of threshold performance of earnings and return on capital targets. Beginning with grants in 2021,targets, in addition to achievement of earnings and return on capital targets, a multiplier is applied to performance share and PSU achievement based on relative total shareholder return (“rTSR”)rTSR against peers over the performance period.
Share-based compensation expense was $3.8$4.1 million and $3.1$3.0 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $11.9$8.9 million and $10.2$8.1 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. We recognize share-based compensation expense over the awards’ vesting period. As of SeptemberJune 30, 2022,2023, we had $25.3$28.8 million of pre-tax unrecognized compensation cost related to outstanding share-based compensation awards expected to be recognized over a weighted average period of 2.12.0 years.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of conducting our business, we become involved in certain legal matters and investigations including liability claims, taxes other than income taxes, contract disputes, employment, and other litigation matters. We accrue for anticipated costs to resolve matters that are probable and estimable. We believe the outcomes of these matters will not have a material impact on our business or our consolidated financial statements.
We record liabilities for claims against the Company based on our best estimate of expected losses. The primary claims arising for the Company through its trucking, intermodal, and logistics operations consist of accident-related claims for personal injury, collision, and comprehensive compensation, in addition to workers’ compensation, property damage, cargo, and wage and benefit claims. We maintain excess liability insurance with licensed insurance carriers for liability in excess of amounts we self-insure, which serves to largely offset the Company’s liability associated with these claims, with the exception of wage and benefit claims for which we self-insure. We review our accruals periodically to ensure that the aggregate amounts of our accruals are appropriate at any period after consideration of available insurance coverage. Although we expect that our claims accruals will continue to vary based on future developments, assuming that we are able to continue to obtain and maintain excess liability insurance coverage for such claims, we do not anticipate that such accruals will, in any period, materially impact our operating results.
At SeptemberAs of June 30, 2022,2023, our firm commitments to purchase transportation equipment totaled $508.0$331.6 million.
During the first quarter of 2022, the Company recorded a $5.2 million charge as a result of an adverse audit assessment by a state jurisdiction over the applicability of sales tax for prior periods on rolling stock equipment used within that state. The charge is included within operating supplies and expenses—net on the consolidated statements of comprehensive income for the nine months ended September 30, 2022. The Company filed a request for appeal of the audit assessment with the state jurisdiction.jurisdiction, and during the second quarter of 2023, a ruling was made in favor of the state resulting in an additional $2.9 million in interest and penalties being recorded by the Company. The Company plans to file another request for appeal. Both the initial charge and the additional interest and penalties incurred are recorded within operating supplies and expenses—net on the consolidated statements of comprehensive income.
As previously disclosed, aA representative of the former owners of WSL filed a lawsuit alleging that we did not fulfill certain obligations under the purchase and sale agreement and claiming that the former owners of WSL were entitled to damages including an additional payment of $40.0 million under an earn-out arrangement. On April 25, 2022, the Delaware Superior Court entered judgment in favor of the former owners of WSL, awarding $40.0 million in compensatory damages, plus prejudgment interest and the former owners’ attorneys’ fees, and the Company recorded an estimated total charge of $59.0 million in its results of operations as of March 31, 2022.fees. During the second quarter of 2022, the Company settled with the former owners of WSL for a total of $57.0 million, which was subsequently paid during the third quarter of 2022, and included
within othermillion. Other general expenses on the consolidated statements of comprehensive income for the ninethree and six months ended SeptemberJune 30, 2022.2022 include a benefit of $2.0 million and expense of $57.0 million, respectively.
13. SEGMENT REPORTING
We have three reportable segments – Truckload, Intermodal, and Logistics – which are based primarily on the services each segment provides.
As of December 31, 2021, our operating segments within the Truckload reportable segment were VTL and Bulk. The operating results of MLS, a standalone operating segment, have been aggregated into the Truckload reportable segment as it shares similar economic characteristics with our other Truckload operating segments and meets the other aggregation criteria described in ASC 280. The operating results of deBoer are also included within the Truckload reportable segment from the date of acquisition through when their operations ceased in July and their assets were deployed throughout the business. VTL delivers truckload quantities over irregular routes and customer freight with dedicated contracts using dry van and specialty trailers. Bulk transports key inputs to manufacturing processes, such as specialty chemicals, using specialty trailers. MLS provides dedicated truckload services focusing primarily on freight with consistent routes.14
In November 2022, the Company executed a management buyout agreement to sell its Asia operations. While Asia met the definition of an operating segment, it did not meet the quantitative threshold for separate disclosure, and the results were included in “Other” in the tables below during 2022.
The CODM reviews revenues for each segment without the inclusion of fuel surcharge revenues. For segment purposes, any fuel surcharge revenues earned are recorded as a reduction of the segment’s fuel expenses. Income from operations at the segment level reflects the measure presented to the CODM for each segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable by segment. All transactions between reportable segments are eliminated in consolidation.
Substantially all of our revenues and assets were generated or located within the U.S.
The following tables summarize our segment information. Inter-segment revenues were immaterial for all segments, with the exception of Other, which included revenues from insurance premiums charged to other segments for workers’ compensation, auto, and other types of insurance. Inter-segment revenues included in Other revenues below were $19.0$16.2 million and $16.0$14.9 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively, and $53.4 million and $46.1$34.4 million for the ninesix months ended SeptemberJune 30, 2022,2023 and 2021 respectively.2022.
| | Revenues by Segment | Revenues by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | Revenues by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Truckload | Truckload | | $ | 571.2 | | | $ | 484.4 | | | $ | 1,691.2 | | | $ | 1,411.3 | | Truckload | | $ | 532.7 | | | $ | 571.6 | | | $ | 1,069.7 | | | $ | 1,120.0 | |
| Intermodal | Intermodal | | 334.7 | | | 295.7 | | | 971.9 | | | 825.5 | | Intermodal | | 261.0 | | | 335.1 | | | 527.1 | | | 637.2 | |
| Logistics | Logistics | | 464.2 | | | 474.6 | | | 1,531.2 | | | 1,261.2 | | Logistics | | 343.4 | | | 521.3 | | | 725.6 | | | 1,067.0 | |
| Other | Other | | 97.3 | | | 98.0 | | | 274.2 | | | 284.9 | | Other | | 78.9 | | | 91.6 | | | 171.1 | | | 176.9 | |
| Fuel surcharge | Fuel surcharge | | 233.5 | | | 114.4 | | | 648.5 | | | 314.8 | | Fuel surcharge | | 155.6 | | | 249.0 | | | 334.8 | | | 415.0 | |
| Inter-segment eliminations | Inter-segment eliminations | | (25.6) | | | (22.6) | | | (74.3) | | | (63.8) | | Inter-segment eliminations | | (25.1) | | | (21.7) | | | (53.1) | | | (48.7) | |
| Operating revenues | Operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | | Operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
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| Income (Loss) from Operations by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Truckload | | $ | 64.8 | | | $ | 80.7 | | | $ | 127.4 | | | $ | 200.1 | |
| Intermodal | | 23.7 | | | 42.3 | | | 53.7 | | | 81.2 | |
| Logistics | | 12.8 | | | 47.3 | | | 31.3 | | | 89.2 | |
| Other | | 2.5 | | | 6.3 | | | 6.0 | | | (58.8) | |
| Income from operations | | $ | 103.8 | | | $ | 176.6 | | | $ | 218.4 | | | $ | 311.7 | |
| | Income (Loss) from Operations by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| Depreciation and Amortization by Segment | | Depreciation and Amortization by Segment | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Truckload | Truckload | | $ | 83.2 | | | $ | 85.1 | | | $ | 283.3 | | | $ | 197.0 | | Truckload | | $ | 68.0 | | | $ | 63.7 | | | $ | 135.2 | | | $ | 120.8 | |
| Intermodal | Intermodal | | 31.1 | | | 45.7 | | | 112.3 | | | 100.6 | | Intermodal | | 13.4 | | | 14.1 | | | 26.5 | | | 27.8 | |
| Logistics | Logistics | | 27.9 | | | 22.1 | | | 117.1 | | | 55.0 | | Logistics | | — | | | 0.1 | | | 0.1 | | | 0.1 | |
| Other | Other | | 3.2 | | | 0.8 | | | (55.6) | | | 3.1 | | Other | | 11.8 | | | 8.4 | | | 23.2 | | | 21.4 | |
| Income from operations | | $ | 145.4 | | | $ | 153.7 | | | $ | 457.1 | | | $ | 355.7 | | |
| Depreciation and amortization | | Depreciation and amortization | | $ | 93.2 | | | $ | 86.3 | | | $ | 185.0 | | | $ | 170.1 | |
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| Depreciation and Amortization by Segment | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Truckload | | $ | 62.8 | | | $ | 52.1 | | | $ | 183.6 | | | $ | 157.1 | |
| Intermodal | | 14.6 | | | 12.4 | | | 42.4 | | | 35.5 | |
| Logistics | | — | | | 0.1 | | | 0.1 | | | 0.2 | |
| Other | | 10.8 | | | 9.6 | | | 32.2 | | | 27.7 | |
| Depreciation and amortization | | $ | 88.2 | | | $ | 74.2 | | | $ | 258.3 | | | $ | 220.5 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes and our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
INTRODUCTION
Company Overview
We are a transportation and logistics services company providing a broadmultimodal portfolio of truckload, intermodal, and logistics solutions and operating one of the largest for-hire trucking fleets in North America.solutions. Our diversified portfolio of complementary service offerings enables us to serve the varied needs of our customers and provides us with a greater opportunity to allocate capital in a manner designedthat seeks to maximize returns across all market cycles and economic conditions. We continually monitor our performance and market conditions to ensure appropriate allocation of capital and resources to grow our businesses, while optimizing returns across reportable segments. Our strong balance sheet, scalable platform, and experienced operations team are supportive of our acquisition strategy, which includes acquiring high-quality businesses that meet our disciplined selection criteria to enhance our service offerings and broaden our customer base.
Our truckload services consist of over the road freight transportation via dry van, bulk, temperature-controlled, and flat-bed trailers across either network or dedicated configurations. Freight is transported and delivered by our company-employed drivers in company trucks and by owner-operators. These services areowner-operators with company-owned trailers and executed through either networklong-haul or dedicated contracts and include standard long-haul and regional shipping services, primarily using dry van, bulk, temperature-controlled, and flat-bed equipment, as well as cross dock andincluding customized solutions for high-value and time-sensitive loads with coverage throughout North America.
Our intermodal services consistsconsist of door-to-door container on flat car (“COFC”) service through a combination of rail and dray transportation, in association with our rail carrier providers. Our intermodal business uses company-owned containers, chassis, and trucks with primarily company dray drivers, augmented by third-party dray capacity.
Our logistics services consist of asset-light freight brokerage (including both traditional brokerage and Power Only services which leveragesleverage our nationwide company-owned trailer pools to match third-party capacity with customer demand), supply chain (including 3PL), warehousing, and import/export services. Our logistics business provides value-added services using both our assets and third-party capacity, augmented by our trailing assets, to manage and move our customers’ freight.
Our success depends on our ability to balance our transportation network and efficiently and effectively manage our resources in the delivery of truckload, intermodal, and logistics services to our customers. Resource requirements vary with customer demand, which may be subject to seasonal or general economic conditions. We believe that our ability to properly select freight and adapt to changes in customer transportation needs allows us to efficiently deploy resources and make capital investments in trucks, trailers, containers, and chassis or obtain qualified third-party capacity at reasonable prices.
Consistent with the transportation industry, our business iscan be seasonal across each of our segments, which generally translates to our reported revenues being the lowest in the first quarter and highest in the fourth quarter. Operating expenses tend to be higher in the winter months, primarily due to colder weather, which causes higher maintenance expense and higher fuel consumption from increased idle time.
Recent Developments
Acquisitions
On December 31, 2021, the Company completed the acquisition of MLS, a privately held truckload carrier based in Celina, OH. MLS is a dedicated carrier that primarily serves the central U.S. and complements our growing dedicated operations. In 2022, MLS financial results are reported in dedicated operations as part of our Truckload segment.
On June 7, 2022, the Company completed the acquisition of deBoer, which provided us the opportunity to expand our company driver capacity, as well as our tractor and trailer fleet primarily within our dedicated Truckload operations. During the third quarter, the Company successfully transitioned equipment and employees from deBoer to Schneider, deBoer operations ceased, and drivers and equipment were deployed primarily within Truckload.
Refer to Note 2, Acquisitions, for additional details on our recent acquisitions.
Adverse Legal Judgment
On April 25, 2022, in connection with the litigation with the former owners of WSL, the Delaware Superior Court entered judgment in favor of the former owners, awarding $40.0 million in compensatory damages plus interest and attorneys’ fees, and the Company included an estimated total charge of $59.0 million in its results of operations as of March 31, 2022. In May of 2022, the parties re-evaluated their positions including the risks and benefits of a potential appeal of the Delaware Superior Court's judgment, and a final settlement was reached in the amount of $57.0 million. This final settlement has been recognized in our results of operations for the nine months ended September 30, 2022, and payment was made in the third quarter of 2022. Refer to Note 12, Commitments and Contingencies, for additional details.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
In this section of our report, we present the following non-GAAP financial measures: (1) revenues (excluding fuel surcharge), (2) adjusted income from operations, (3) adjusted operating ratio, and (4) adjusted net income. We also provide reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Management believes the use of each of these non-GAAP measures assists investors in understanding our business by (1) removing the impact of items from our operating results that, in our opinion, do not reflect our core operating performance, (2) providing investors with the same information our management uses internally to assess our core operating performance, and (3) presenting comparable financial results between periods. In addition, in the case of revenues (excluding fuel surcharge), we believe the measure is useful to investors because it isolates volume, price, and cost changes directly related to industry demand and the way we operate our business from the external factor of fluctuating fuel prices and the programs we have in place to manage such fluctuations. Fuel-related costs and their impact on our industry are important to our results of operations, but they are often independent of other, more relevant factors affecting our results of operations and our industry.
Although we believe these non-GAAP measures are useful to investors, they have limitations as analytical tools and may not be comparable to similar measures disclosed by other companies. You should not consider the non-GAAP measures in this report in isolation or as substitutes for, or alternatives to, analysis of our results as reported under GAAP. The exclusion of unusual or infrequent items or other adjustments reflected in the non-GAAP measures should not be construed as an inference that our future results will not be affected by unusual or infrequent items or by other items similar to such adjustments. Our management compensates for these limitations by relying primarily on our GAAP results in addition to using the non-GAAP measures.
Enterprise Summary
The following table includes key GAAP and non-GAAP financial measures for the consolidated enterprise. Adjustments to arrive at non-GAAP measures are made at the enterprise level, with the exception of fuel surcharge revenues, which are not included in segment revenues.
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| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except ratios) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | |
Revenues (excluding fuel surcharge) (1) | | 1,441.8 | | | 1,330.1 | | | 4,394.2 | | | 3,719.1 | |
| Income from operations | | 145.4 | | | 153.7 | | | 457.1 | | | 355.7 | |
Adjusted income from operations (2) | | 145.5 | | | 153.7 | | | 468.7 | | | 355.7 | |
| Operating ratio | | 91.3 | % | | 89.4 | % | | 90.9 | % | | 91.2 | % |
Adjusted operating ratio (3) | | 89.9 | % | | 88.4 | % | | 89.3 | % | | 90.4 | % |
| Net income | | $ | 125.8 | | | $ | 110.0 | | | $ | 347.7 | | | $ | 271.3 | |
Adjusted net income (4) | | 125.9 | | | 110.0 | | | 356.4 | | | 271.3 | |
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| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except ratios) | | 2023 | | 2022 | | 2023 | | 2022 |
| Operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
Revenues (excluding fuel surcharge) (1) | | 1,190.9 | | | 1,497.9 | | | 2,440.4 | | | 2,952.4 | |
| Income from operations | | 103.8 | | | 176.6 | | | 218.4 | | | 311.7 | |
Adjusted income from operations (2) | | 106.7 | | | 174.8 | | | 221.3 | | | 323.2 | |
| Operating ratio | | 92.3 | % | | 89.9 | % | | 92.1 | % | | 90.7 | % |
Adjusted operating ratio (3) | | 91.0 | % | | 88.3 | % | | 90.9 | % | | 89.1 | % |
| Net income | | $ | 77.5 | | | $ | 129.8 | | | $ | 175.5 | | | $ | 221.9 | |
Adjusted net income (4) | | 79.7 | | | 128.4 | | | 177.7 | | | 230.5 | |
(1)We define “revenues (excluding fuel surcharge)” as operating revenues less fuel surcharge revenues, which are excluded from revenues at the segment level. Included below is a reconciliation of operating revenues, the most closely comparable GAAP financial measure, to revenues (excluding fuel surcharge).
(2)We define “adjusted income from operations” as income from operations, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of income from operations, which is the most
directly comparable GAAP measure, to adjusted income from operations. Excluded items for the periods shown are explained in the table and notes below.
(3)We define “adjusted operating ratio” as operating expenses, adjusted to exclude material items that do not reflect our core operating performance, divided by revenues (excluding fuel surcharge). Included below is a reconciliation of operating ratio, which is the most directly comparable GAAP measure, to adjusted operating ratio. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
(4)We define “adjusted net income” as net income, adjusted to exclude material items that do not reflect our core operating performance. Included below is a reconciliation of net income, which is the most directly comparable GAAP measure, to adjusted net income. Excluded items for the periods shown are explained below under our explanation of “adjusted income from operations.”
Revenues (excluding fuel surcharge)
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| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
| Less: Fuel surcharge revenues | | 155.6 | | | 249.0 | | | 334.8 | | | 415.0 | |
| Revenues (excluding fuel surcharge) | | $ | 1,190.9 | | | $ | 1,497.9 | | | $ | 2,440.4 | | | $ | 2,952.4 | |
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| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | |
| Less: Fuel surcharge revenues | | 233.5 | | | 114.4 | | | 648.5 | | | 314.8 | |
| Revenues (excluding fuel surcharge) | | $ | 1,441.8 | | | $ | 1,330.1 | | | $ | 4,394.2 | | | $ | 3,719.1 | |
Adjusted income from operations
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| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Income from operations | | $ | 145.4 | | | $ | 153.7 | | | $ | 457.1 | | | $ | 355.7 | |
Litigation and audit assessments (1) (2) | | — | | | — | | | 62.2 | | | — | |
Acquisition-related costs (3) | | 0.1 | | | — | | | 0.3 | | | — | |
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Property gain—net (4) | | — | | | — | | | (50.9) | | | — | |
| Adjusted income from operations | | $ | 145.5 | | | $ | 153.7 | | | $ | 468.7 | | | $ | 355.7 | |
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| | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Income from operations | | $ | 103.8 | | | $ | 176.6 | | | $ | 218.4 | | | $ | 311.7 | |
Litigation and audit assessments (1) (2) | | 2.9 | | | (2.0) | | | 2.9 | | | 62.2 | |
Acquisition-related costs (3) | | — | | | 0.2 | | | — | | | 0.2 | |
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| | | | | | | | |
Property gain—net (4) | | — | | | — | | | — | | | (50.9) | |
| Adjusted income from operations | | $ | 106.7 | | | $ | 174.8 | | | $ | 221.3 | | | $ | 323.2 | |
(1)Includes $2.9 million for the three and six months ended June 30, 2023 and $5.2 million infor the six months ended June 30, 2022 for charges related to an adverse audit assessmentassessments for prior period state sales tax on rolling stock equipment used within that statestate. Refer to Note 12, Commitments and Contingencies, for the nine months ended September 30, 2022.additional details.
(2)Includes a benefit of $2.0 million and a charge of $57.0 million charge for an adverse settlement related to a lawsuit with former owners of WSL, inclusive of prejudgment interest and the former owners’ attorneys’ fees, for the ninethree and six months ended SeptemberJune 30, 2022.2022, respectively. Refer to Note 12, Commitments and Contingencies, for additional details.
(3)Advisory, legal, and accounting costs related to the Company’s acquisitions. Refer to Note 2, Acquisitions, for additional details.acquisition of deBoer in 2022.
(4)Net gain on the sale of our Canadian facility due to a change in approach to servicing Canada.
Adjusted operating ratio
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions, except ratios) | | 2023 | | 2022 | | 2023 | | 2022 |
| Total operating expenses | | $ | 1,242.7 | | | $ | 1,570.3 | | | $ | 2,556.8 | | | $ | 3,055.7 | |
| Divide by: Operating revenues | | 1,346.5 | | | 1,746.9 | | | 2,775.2 | | | 3,367.4 | |
| Operating ratio | | 92.3 | % | | 89.9 | % | | 92.1 | % | | 90.7 | % |
| | | | | | | | |
| Total operating expenses | | $ | 1,242.7 | | | $ | 1,570.3 | | | $ | 2,556.8 | | | $ | 3,055.7 | |
| Adjusted for: | | | | | | | | |
| Fuel surcharge revenues | | (155.6) | | | (249.0) | | | (334.8) | | | (415.0) | |
| Litigation and audit assessments | | (2.9) | | | 2.0 | | | (2.9) | | | (62.2) | |
| Acquisition-related costs | | — | | | (0.2) | | | — | | | (0.2) | |
| | | | | | | | |
| | | | | | | | |
| Property gain—net | | — | | | — | | | — | | | 50.9 | |
| Adjusted total operating expenses | | $ | 1,084.2 | | | $ | 1,323.1 | | | $ | 2,219.1 | | | $ | 2,629.2 | |
| | | | | | | | |
| Operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | | | $ | 2,775.2 | | | $ | 3,367.4 | |
| Less: Fuel surcharge revenues | | 155.6 | | | 249.0 | | | 334.8 | | | 415.0 | |
| Revenues (excluding fuel surcharge) | | $ | 1,190.9 | | | $ | 1,497.9 | | | $ | 2,440.4 | | | $ | 2,952.4 | |
| | | | | | | | |
| Adjusted operating ratio | | 91.0 | % | | 88.3 | % | | 90.9 | % | | 89.1 | % |
Adjusted operating ratio
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except ratios) | | 2022 | | 2021 | | 2022 | | 2021 |
| Total operating expenses | | $ | 1,529.9 | | | $ | 1,290.8 | | | $ | 4,585.6 | | | $ | 3,678.2 | |
| Divide by: Operating revenues | | 1,675.3 | | | 1,444.5 | | | 5,042.7 | | | 4,033.9 | |
| Operating ratio | | 91.3 | % | | 89.4 | % | | 90.9 | % | | 91.2 | % |
| | | | | | | | |
| Total operating expenses | | $ | 1,529.9 | | | $ | 1,290.8 | | | $ | 4,585.6 | | | $ | 3,678.2 | |
| Adjusted for: | | | | | | | | |
| Fuel surcharge revenues | | (233.5) | | | (114.4) | | | (648.5) | | | (314.8) | |
| Litigation and audit assessments | | — | | | — | | | (62.2) | | | — | |
| Acquisition-related costs | | (0.1) | | | — | | | (0.3) | | | — | |
| | | | | | | | |
| | | | | | | | |
| Property gain—net | | — | | | — | | | 50.9 | | | — | |
| Adjusted total operating expenses | | $ | 1,296.3 | | | $ | 1,176.4 | | | $ | 3,925.5 | | | $ | 3,363.4 | |
| | | | | | | | |
| Operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | | $ | 5,042.7 | | | $ | 4,033.9 | |
| Less: Fuel surcharge revenues | | 233.5 | | | 114.4 | | | 648.5 | | | 314.8 | |
| Revenues (excluding fuel surcharge) | | $ | 1,441.8 | | | $ | 1,330.1 | | | $ | 4,394.2 | | | $ | 3,719.1 | |
| | | | | | | | |
| Adjusted operating ratio | | 89.9 | % | | 88.4 | % | | 89.3 | % | | 90.4 | % |
Adjusted net income
| | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 | | 2023 | | 2022 |
| Net income | Net income | | $ | 125.8 | | | $ | 110.0 | | | $ | 347.7 | | | $ | 271.3 | | Net income | | $ | 77.5 | | | $ | 129.8 | | | $ | 175.5 | | | $ | 221.9 | |
| Litigation and audit assessments | Litigation and audit assessments | | — | | | — | | | 62.2 | | | — | | Litigation and audit assessments | | 2.9 | | | (2.0) | | | 2.9 | | | 62.2 | |
| Acquisition-related costs | Acquisition-related costs | | 0.1 | | | — | | | 0.3 | | | — | | Acquisition-related costs | | — | | | 0.2 | | | — | | | 0.2 | |
| | Property gain—net | Property gain—net | | — | | | — | | | (50.9) | | | — | | Property gain—net | | — | | | — | | | — | | | (50.9) | |
Income tax effect of non-GAAP adjustments (1) | Income tax effect of non-GAAP adjustments (1) | | — | | | — | | | (2.9) | | | — | | Income tax effect of non-GAAP adjustments (1) | | (0.7) | | | 0.4 | | | (0.7) | | | (2.9) | |
| Adjusted net income | Adjusted net income | | $ | 125.9 | | | $ | 110.0 | | | $ | 356.4 | | | $ | 271.3 | | Adjusted net income | | $ | 79.7 | | | $ | 128.4 | | | $ | 177.7 | | | $ | 230.5 | |
(1)Our estimated tax rate on non-GAAP items is determined annually using the applicable consolidated federal and state effective tax rate, modified to remove the impact of tax credits and adjustments that are not applicable to the specific items. Due to differences in the tax treatment of items excluded from non-GAAP income, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP items may differ from our GAAP tax rate and from our actual tax liabilities.
Three Months Ended SeptemberJune 30, 20222023 Compared to Three Months Ended SeptemberJune 30, 2021
Enterprise Results Summary
Enterprise net income increased $15.8decreased $52.3 million, approximately 14%40%, in the thirdsecond quarter of 20222023 compared to the same quarter in 2021.2022. Income from operations declined $8.3$72.8 million during that same period inclusivebut was partially offset by the corresponding decrease in the provision for income taxes and a $3.4 million favorable change in total other expenses (income)—net related to higher interest income and our equity investments. In the three months ended June 30, 2023, the Company recognized pre-tax net gains of $0.1 million compared to $1.8 million in pre-tax losses on our equity investments during the three months ended June 30, 2022.
Adjusted net income decreased $48.7 million, approximately 38%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues decreased $400.4 million, approximately 23%, in the second quarter of 2023 compared to the same quarter in 2022.
Factors contributing to the decrease were as follows:
•a $20.6$177.9 million decrease in Logistics segment revenues (excluding fuel surcharge) driven by decreased revenue per order due to a softer freight environment, a decline in volume within our brokerage business, as well as decreased port dray revenues;
•a $93.4 million decrease in fuel surcharge revenues resulting from decreased fuel prices;
•a $74.1 million decrease in Intermodal segment revenues (excluding fuel surcharge) due to a decrease in orders and revenue per order; and
•a $38.9 million decrease in Truckload segment revenues (excluding fuel surcharge) resulting from a decline in revenue per truck per week and volume, primarily within our network business.
Enterprise revenues (excluding fuel surcharge) decreased $307.0 million, approximately 20%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations decreased $72.8 million, approximately 41%, in the second quarter of 2023 compared to the same quarter in 2022, primarily due to a decrease in net revenue per order in Logistics, revenue per order in Intermodal, and revenue per truck per week in Truckload. The revenue impacts of volume declines within our brokerage business, Intermodal, and Truckload due to weakened industry demand also contributed to the decrease. These factors were partially offset by a decline in rail and owner-operator purchased transportation costs, equipment rental expense, performance-based incentive compensation, and driver onboarding costs.
Adjusted income from operations decreased $68.1 million, approximately 39%.
Enterprise operating ratio (operating expenses as a percentage of operating revenues) increased on both a GAAP and adjusted basis when compared to the second quarter of 2022.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
•Purchased transportation decreased $247.1 million, or 32%, quarter over quarter, primarily resulting from a decline in third-party carrier costs within Logistics due to lower purchased transportation costs per order and brokerage volumes, in addition to a decline in rail purchased transportation driven by decreases in rail cost per mile and Intermodal orders. Owner-operator purchased transportation costs also declined within Truckload due to lower rate per mile and a reduction in owner-operator capacity.
•Salaries, wages, and benefits decreased $15.4 million, or 5%, quarter over quarter, mainly due to a decrease in performance-based incentive compensation.
•Fuel and fuel taxes for company trucks decreased $50.5 million, or 34%, quarter over quarter, driven by a decrease in cost per gallon. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $6.9 million, or 8%, quarter over quarter, mainly due to additional depreciation expense incurred as a result of trailer growth within Truckload, a reduction in tractor age of fleet, and inflationary unit cost increases for new equipment.
•Operating supplies and expenses—net decreased $12.2 million, or 8%, quarter over quarter, largely resulting from a decrease in equipment rental expense driven by improved port fluidity, decreased port dray volumes, and a higher percentage of dray moves performed by company drivers in 2023, as well as an increase in gains on sales of propertyequipment due to an increase in the quantity of units sold. These items were partially offset by $2.9 million of interest and penalties incurred related to an unfavorable ruling during an appeal of a prior year adverse audit assessment over the applicability of sales tax for prior periods on rolling stock equipment. Changes
•Other general expenses decreased $9.9 million, or 25%, quarter over quarter, primarily related to a decrease in our equity investmentsdriver onboarding costs due to lower cost per hire and fewer driver hires as a result of weakened industry demand.
Total Other Expenses (Income)
Total other expenses decreased $3.4 million in the second quarter of 2023 compared to the same quarter in 2022. This change was primarily driven by an increase of $2.3 million in interest income for 2023.
Income Tax Expense
Our provision for income taxes decreased $17.1 million, or 40% in the second quarter of 2023 compared to the same quarter in 2022, primarily due to lower taxable income. The effective income tax rate was 24.9% for the three months ended SeptemberJune 30, 2022 included pre-tax net gains of $25.9 million2023 compared to $3.1 million in pre-tax net losses during24.8% for the three months ended September 30, 2021. A corresponding increase insame quarter last year. Our provision for income taxes partially offsetmay fluctuate in future periods to the net increase in pre-tax income.extent there are changes to tax laws and regulations.
Revenues and Income from Operations by Segment
The following tables summarize revenues and income increasedfrom operations by segment. | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, |
Revenues by Segment (in millions) | | 2023 | | 2022 |
| Truckload | | $ | 532.7 | | | $ | 571.6 | |
| Intermodal | | 261.0 | | | 335.1 | |
| Logistics | | 343.4 | | | 521.3 | |
| Other | | 78.9 | | | 91.6 | |
| Fuel surcharge | | 155.6 | | | 249.0 | |
| Inter-segment eliminations | | (25.1) | | | (21.7) | |
| Operating revenues | | $ | 1,346.5 | | | $ | 1,746.9 | |
| | | | | | | | | | | | | | |
| | Three Months Ended
June 30, |
Income from Operations by Segment (in millions) | | 2023 | | 2022 |
| Truckload | | $ | 64.8 | | | $ | 80.7 | |
| Intermodal | | 23.7 | | | 42.3 | |
| Logistics | | 12.8 | | | 47.3 | |
| Other | | 2.5 | | | 6.3 | |
| Income from operations | | 103.8 | | | 176.6 | |
| Adjustments: | | | | |
| Litigation and audit assessments | | 2.9 | | | (2.0) | |
| | | | |
| | | | |
| Acquisition-related costs | | — | | | 0.2 | |
| | | | |
| Adjusted income from operations | | $ | 106.7 | | | $ | 174.8 | |
We monitor and analyze a number of KPIs to manage our business and evaluate our financial and operating performance.
Truckload
The following table presents our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. The two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of one-way shipments.
Impacts from deBoer are included within dedicated operations below beginning in the third quarter of 2022. | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2023 | | 2022 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 302.8 | | | $ | 305.3 | |
Average trucks (2) (3) | | 5,973 | | | 6,004 | |
Revenue per truck per week (4) | | $ | 3,948 | | | $ | 3,962 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 230.2 | | | $ | 264.6 | |
Average trucks (2) (3) | | 4,390 | | | 4,462 | |
Revenue per truck per week (4) | | $ | 4,083 | | | $ | 4,619 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 532.7 | | | $ | 571.6 | |
Average trucks (2) (3) | | 10,363 | | | 10,466 | |
Revenue per truck per week (4) | | $ | 4,005 | | | $ | 4,242 | |
Average company trucks (3) | | 8,400 | | | 8,477 | |
Average owner-operator trucks (3) | | 1,963 | | | 1,989 | |
Trailers (6) | | 44,714 | | | 41,236 | |
Operating ratio (7) | | 87.8 | % | | 85.9 | % |
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Truckload revenues (excluding fuel surcharge) decreased $38.9 million, approximately 7%, in the second quarter of 2023 compared to the same quarter in 2022. Rate per loaded mile and volume in combination decreased 7%, primarily within network, as lower network prices were driven by market conditions.
Truckload income from operations decreased $15.9 million, approximately 14%.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated. | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2023 | | 2022 |
Orders (1) | | 102,622 | | | 119,563 | |
| Containers | | 27,419 | | | 28,381 | |
Trucks (2) | | 1,568 | | | 1,590 | |
Revenue per order (3) | | $ | 2,572 | | | $ | 2,788 | |
Operating ratio (4) | | 90.9 | % | | 87.4 | % |
(1)Based on delivered rail orders.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) decreased $74.1 million, approximately 22%, in the second quarter of 2023 compared to the same quarter in 2022, primarily due to a 14% decrease in orders. Revenue per order decreased $216, or 8%, due to a lower rate per mile and shorter length of haul.
Intermodal income from operations decreased $18.6 million, approximately 44%, in the second quarter of 2023 compared to the same quarter in 2022. Factors contributing to the decrease in income from operations are primarily due to the items cited above, partially offset by a decrease in rail-related costs and reduced dray related costs due to an increase in company driver drays.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated. | | | | | | | | | | | | | | |
| | | Three Months Ended
June 30, |
| | | 2023 | | 2022 |
Operating ratio (1) | | 96.3 | % | | 90.9 | % |
| | | | |
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) decreased $177.9 million, approximately 34%, in the second quarter of 2023 compared to the same quarter in 2022. This was primarily due to a decrease in brokerage revenue per order and volume due to a softer freight environment, as well as lower port dray revenues.
Logistics income from operations decreased $34.5 million, approximately 73%, in the second quarter of 2023 compared to the same quarter in 2022. This is due to the factors listed above, partially offset by a decrease in third-party carrier costs and equipment rental charges.
Other
Other income from operations decreased $3.8 million in the second quarter of 2023 compared to the same quarter in 2022. The increase was primarily driven by $2.9 million of expense related to an appeal of the audit assessment over the applicability of prior period state sales tax in 2023 and a $2.0 million favorable adjustment related to the former owners of WSL in 2022. See Note 12 Commitments and Contingencies for more information.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Enterprise Results Summary
Enterprise net income decreased $46.4 million, approximately 21%, in the six months ended June 30, 2023 compared to the same period in 2022, primarily due to a $93.3 million decrease in income from operations, partially offset by a $29.7 million favorable change in total other expenses (income)—net related to our equity investments and higher interest income, as well as the corresponding decrease in the provision for income taxes. In the six months ended June 30, 2023, the Company recognized
pre-tax net gains of $17.7 million compared to $10.1 million in pre-tax losses on our equity investments during the six months ended June 30, 2022.
Adjusted net income decreased $52.8 million, approximately 23%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $230.8decreased $592.2 million, approximately 16%18%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021.2022.
Factors contributing to the increasedecrease were as follows:
•a $119.1 million increase in fuel surcharge revenues resulting from increased fuel prices in the third quarter of 2022 compared to the same quarter in 2021, as well as fuel surcharge revenues from the acquisition of MLS;
•an $86.8 million increase in Truckload segment revenues (excluding fuel surcharge) resulting from improved revenue per truck per week, the addition of revenues (excluding fuel surcharge) from the acquisition of MLS, and incremental dedicated volumes, partially offset by lower network volumes due to a return to more balanced market conditions and reduced network productivity; and
•a $39.0 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an increase in revenue per order and orders despite continued network fluidity challenges.
The above factors were partially offset by:
•a $10.4$341.4 million decrease in Logistics segment revenues (excluding fuel surcharge) driven by decreased revenue per order due to moderating market conditions,a softer demand environment, a decline in brokerage volumes, and decreased port dray revenues;
•a $110.1 million decrease in Intermodal segment revenues (excluding fuel surcharge) due to a decrease in orders and revenue per order;
•an $80.2 million decrease in fuel surcharge revenues resulting from decreased fuel prices in the first six months of 2023 compared to the same period in 2022; and
•a $50.3 million decrease in Truckload segment revenues (excluding fuel surcharge) driven by a decline in revenue per truck per week within our network business and lower volumes across Truckload, partially offset by volume growthimproved revenue per truck per week within our brokerage business (including our Power Only offering) in addition to incremental port dray revenues.dedicated business.
Enterprise revenues (excluding fuel surcharge) increased $111.7decreased $512.0 million, approximately 8%17%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations decreased $8.3$93.3 million, approximately 5%30%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021,2022, primarily due to higher rail purchased transportation costs within Intermodal, an increasea decrease in driver-related costs resulting from pay increases and an increase in company drivers, fewer equipment sales resulting in lower gains, and higher maintenance costs due to inflationary cost pressures and the MLS acquisition. The above factors were partially offset by an increase innet revenue per order in Intermodal,Logistics, revenue per truck per week in Truckload, and net revenue per order in Logistics driven by effective network andIntermodal. A net gain on sale of $50.9 million in 2022 in connection with the sale of our Canadian facility; the revenue management. Our dedicated Truckload volumes grew due to the acquisitionimpacts of MLS and new business start-ups, whilevolume declines within our brokerage business, experiencedIntermodal, and Truckload; and incremental equipment depreciation costs also contributed to the decrease. These factors were partially offset by a 5% increase$57.0 million adverse judgment related to a lawsuit with former owners of WSL in order volume driven by the continued expansion of our Power Only offering2022, as well as lower rail and leveraging our Schneider FreightPower® digital platform.owner-operator purchased transportation, equipment rental expense, performance-based incentive compensation, and driver onboarding costs in 2023.
Adjusted income from operations decreased $8.2$101.9 million, approximately 5%32%.
Enterprise operating ratio (operating expenses as a percentage of operating revenues) increased on both a GAAP and adjusted basis when compared to the third quartersame period of 2021. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.2022.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
•Purchased transportation increased $42.7costs decreased $424.1 million, or 6%28%, quarterperiod over quarter,period, primarily resulting from higher rail purchased transportation driven by increases in Intermodal rail cost per mile. These increases were partially offset by a decline indecreased third-party carrier costs within Logistics due to lower purchased transportation costs per order driven by moderating market conditions.and brokerage volumes, as well as lower rail purchased transportation resulting from a decrease in both rail cost per mile and orders in Intermodal. Owner-operator purchased transportation costs also declined due to lower pay per mile and a reduction in owner-operator capacity within Truckload.
•Salaries, wages, and benefits increased $65.8decreased $15.1 million, or 23%2%, quarterperiod over quarter,period, largely due to higher driver pay within Truckloada decrease in performance-based incentive compensation, office salaries and Intermodal resulting from pay increases and an increase in company drivers. The acquisition of MLS and an increasewages due to a decrease in headcount, across the organization contributed to the remaining increase quarter over quarter.and healthcare costs as a result of claims favorability and lower plan utilization.
•Fuel and fuel taxes for company trucks increased $63.1decreased $47.7 million, or 90%19%, quarterperiod over quarter,period, driven primarilyby a decrease in cost per gallon, partially offset by an increase in cost per gallon, as well as additional fuel expense recorded related to the acquisition of MLS.company driver miles within Truckload. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $14.0$14.9 million, or 19%9%, quarterperiod over quarter,period, mainly due to the acquisition of MLS, which accounted for nearly half of the increase. The remaining increase was driven by additional depreciation expense incurred as a result of truck andresulting from trailer growth within Truckload, a reduction in tractor age of fleet, and container growth within Intermodal.inflationary unit cost increases for new equipment.
•Operating supplies and expenses—net increased $41.0$46.2 million, or 38%19%, quarterperiod over quarter, largely resulting from a decrease in gains on sales of property and equipment due to fewer equipment gains, higher maintenance costs due to inflationary cost pressures and the MLS acquisition, additional rail storage expenses caused by network fluidity challenges, and an increase in equipment rental expenseperiod, driven by port congestiona $50.9 million net gain in 2022 related to the sale of the Company’s Canadian facility and higher customer dwell time. These factors were partially offset by lower cost of goods sold in our leasing business due to an increase in lease activity in 2023. These factors were partially offset by a decrease in equipment rental expense as a result of improved port fluidity, decreased port dray volumes, and an increase in the percentage of dray moves performed by company drivers in 2023; an increase in gains on sales of equipment due to an increase in the quantity of units sold; and a $2.3 million net reduction in lease activity.
•Insurance andexpense related expenses increased $7.2 million, or 37%, quarterto a 2022 adverse audit assessment over quarter, primarily due to increases in auto liability insurance costs relating to favorable claims frequency and severity in the applicability of state sales tax for prior year. The remaining increase was also attributable to increased claims frequency in the current year and insurance premium costs for MLS.periods on rolling stock equipment.
•Other general expenses increased $5.3decreased $72.0 million, or 15%53%, quarterperiod over quarter,period, primarily due to a $57.0 million adverse settlement related to increaseda lawsuit with former owners of WSL in 2022, a decrease in driver onboarding costs due to lower cost per hire and fewer driver hires as a result of weakened industry demand, and lower professional service costs.fees.
Total Other Expenses (Income)
Total other expenses decreased $29.0income increased $29.7 million, approximately 190%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021. This change was driven by2022, primarily due to a $25.9$17.7 million pre-tax gaingains on our equity investments in the third quarter of 2022 compared to a $3.1$10.1 million pre-tax net losslosses recorded for the same period in the third quarter of 2021.2022. Interest income also increased $4.0 million compared to 2022. See Note 6, Investments, for more information on our equity investments.
Income Tax Expense
Our provision for income taxes increased $4.9decreased $17.2 million, approximately 13%23%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021, primarily2022 due to higherlower taxable income. The effective income tax rate was 25.0%24.5% for the threesix months ended SeptemberJune 30, 20222023 compared to 25.2%25.1% for the same quarterperiod last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenues and income (loss) from operations by segment.
| | | Three Months Ended
September 30, | | Six Months Ended
June 30, |
Revenues by Segment (in millions) | Revenues by Segment (in millions) | | 2022 | | 2021 | Revenues by Segment (in millions) | | 2023 | | 2022 |
| Truckload | Truckload | | $ | 571.2 | | | $ | 484.4 | | Truckload | | $ | 1,069.7 | | | $ | 1,120.0 | |
| Intermodal | Intermodal | | 334.7 | | | 295.7 | | Intermodal | | 527.1 | | | 637.2 | |
| Logistics | Logistics | | 464.2 | | | 474.6 | | Logistics | | 725.6 | | | 1,067.0 | |
| Other | Other | | 97.3 | | | 98.0 | | Other | | 171.1 | | | 176.9 | |
| Fuel surcharge | Fuel surcharge | | 233.5 | | | 114.4 | | Fuel surcharge | | 334.8 | | | 415.0 | |
| Inter-segment eliminations | Inter-segment eliminations | | (25.6) | | | (22.6) | | Inter-segment eliminations | | (53.1) | | | (48.7) | |
| Operating revenues | Operating revenues | | $ | 1,675.3 | | | $ | 1,444.5 | | Operating revenues | | $ | 2,775.2 | | | $ | 3,367.4 | |
| | | Three Months Ended
September 30, | | Six Months Ended
June 30, |
Income from Operations by Segment (in millions) | | 2022 | | 2021 | |
Income (Loss) from Operations by Segment (in millions) | | Income (Loss) from Operations by Segment (in millions) | | 2023 | | 2022 |
| Truckload | Truckload | | $ | 83.2 | | | $ | 85.1 | | Truckload | | $ | 127.4 | | | $ | 200.1 | |
| Intermodal | Intermodal | | 31.1 | | | 45.7 | | Intermodal | | 53.7 | | | 81.2 | |
| Logistics | Logistics | | 27.9 | | | 22.1 | | Logistics | | 31.3 | | | 89.2 | |
| Other | Other | | 3.2 | | | 0.8 | | Other | | 6.0 | | | (58.8) | |
| Income from operations | Income from operations | | 145.4 | | | 153.7 | | Income from operations | | 218.4 | | | 311.7 | |
| Adjustments: | Adjustments: | | Adjustments: | |
| Litigation and audit assessments | | Litigation and audit assessments | | 2.9 | | | 62.2 | |
| Acquisition-related costs | | Acquisition-related costs | | — | | | 0.2 | |
| | Acquisition-related costs | | 0.1 | | | — | | |
| | Property gain—net | | Property gain—net | | — | | | (50.9) | |
| Adjusted income from operations | Adjusted income from operations | | $ | 145.5 | | | $ | 153.7 | | Adjusted income from operations | | $ | 221.3 | | | $ | 323.2 | |
We monitor and analyze a number of KPIs to manage our business and evaluate our financial and operating performance.
Truckload
The following table presents our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. The two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of one-way shipments.
MLS and deBoer impacts are included within dedicated operations below beginning in the first and third quarters of 2022, respectively.
| | | | | Three Months Ended
September 30, | | | Six Months Ended
June 30, |
| | | | 2022 | | 2021 | | | 2023 | | 2022 |
| Dedicated | Dedicated | | | | | Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | $ | 306.7 | | | $ | 204.0 | | Revenues (excluding fuel surcharge) (1) | | $ | 605.8 | | | $ | 585.4 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 6,020 | | | 4,240 | | Average trucks (2) (3) | | 5,961 | | | 5,860 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 3,925 | | | $ | 3,706 | | Revenue per truck per week (4) | | $ | 3,963 | | | $ | 3,915 | |
| Network | Network | | Network | |
Revenues (excluding fuel surcharge) (1) | Revenues (excluding fuel surcharge) (1) | | $ | 265.3 | | | $ | 279.9 | | Revenues (excluding fuel surcharge) (1) | | $ | 464.3 | | | $ | 531.3 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 4,526 | | | 4,942 | | Average trucks (2) (3) | | 4,429 | | | 4,530 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 4,514 | | | $ | 4,364 | | Revenue per truck per week (4) | | $ | 4,089 | | | $ | 4,596 | |
| Total Truckload | Total Truckload | | Total Truckload | |
Revenues (excluding fuel surcharge) (5) | Revenues (excluding fuel surcharge) (5) | | $ | 571.2 | | | $ | 484.4 | | Revenues (excluding fuel surcharge) (5) | | $ | 1,069.7 | | | $ | 1,120.0 | |
Average trucks (2) (3) | Average trucks (2) (3) | | 10,546 | | | 9,182 | | Average trucks (2) (3) | | 10,390 | | | 10,390 | |
Revenue per truck per week (4) | Revenue per truck per week (4) | | $ | 4,178 | | | $ | 4,060 | | Revenue per truck per week (4) | | $ | 4,017 | | | $ | 4,212 | |
Average company trucks (3) | Average company trucks (3) | | 8,560 | | | 6,875 | | Average company trucks (3) | | 8,437 | | | 8,353 | |
Average owner-operator trucks (3) | Average owner-operator trucks (3) | | 1,986 | | | 2,307 | | Average owner-operator trucks (3) | | 1,953 | | | 2,037 | |
Trailers (6) | Trailers (6) | | 42,980 | | | 36,434 | | Trailers (6) | | 44,714 | | | 41,236 | |
Operating ratio (7) | Operating ratio (7) | | 85.4 | % | | 82.4 | % | Operating ratio (7) | | 88.1 | % | | 82.1 | % |
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Truckload revenues (excluding fuel surcharge) increased $86.8decreased $50.3 million, approximately 18%4%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021, due to an 11% increase in volume resulting from the acquisition of MLS and new business start-ups within dedicated, while network volumes decreased mainly due to a return to more balanced market conditions. Rate2022; rate per loaded mile also increased 5%, achievedand volume in support of inflationary operating costs and ongoing challenges with longer dwell times at customer locations, andcombination decreased 4%. Decreased productivity within network was partially offset by reduced networkan increase in dedicated productivity. Additionally, dedicated average trucks grew nearly 1,800 units quarter over quarter to approximately 6,000, which was a milestone crossed in the second quarter of 2022 and further supported increased volumes. Network average trucks declined approximately 400 units quarter over quarter to approximately 4,500.
Truckload income from operations decreased $1.9$72.7 million, approximately 2%36%, in the third quarter of 2022six months ended June 30, 2023 compared to the same quarterperiod in 2021.2022. Factors contributing to the decrease in income from operations include reduced network volumes, an increasea $50.9 million net gain related to the sale of the Company’s Canadian facility in driver-related costs resulting largely from pay increases and more company drivers within dedicated, fewer equipment sales resulting in lower gains, and2022, higher maintenance costsdepreciation due to inflationary cost pressures on equipment in 2023, and the MLS acquisition.higher driver pay in an effort to retain drivers. These items were mostlypartially offset by favorable pricing conditions, as well as volume growth within dedicated bolstered by the acquisition of MLS.lower owner-operator purchased transportation and higher gains on equipment sales.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2022 | | 2021 |
Orders (1) | | 115,743 | | | 111,801 | |
| Containers | | 28,308 | | | 23,796 | |
Trucks (2) | | 1,691 | | | 1,569 | |
Revenue per order (3) | | $ | 2,936 | | | $ | 2,624 | |
Operating ratio (4) | | 90.7 | % | | 84.5 | % |
(1)Based on delivered rail orders.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $39.0 million, approximately 13%, in the third quarter of 2022 compared to the same quarter in 2021, primarily due to a $312, or 12%, improvement in revenue per order, a result of higher rate per mile, and a 4% increase in orders. Intermodal also grew its container count by 4,512, or 19%, from the third quarter of 2021, which helped drive the increase in order count despite continued fluidity challenges resulting from supply chain constraints, including the impact of rail labor negotiations.
Intermodal income from operations decreased $14.6 million, approximately 32%, in the third quarter of 2022 compared to the same quarter in 2021. Factors contributing to the decrease in income from operations include higher rail-related costs, mainly due to network fluidity issues which put upward pressure on carrier rates, increased dray execution costs, and nonrecurring costs related to the transition to the UP as our Western rail provider on January 1, 2023.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, |
| | | 2022 | | 2021 |
Operating ratio (1) | | 94.0 | % | | 95.3 | % |
| | | | |
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) decreased $10.4 million, approximately 2%, in the third quarter of 2022 compared to the same quarter in 2021. This was primarily due to a decrease in revenue per order driven by moderating market conditions. The decrease was partially offset by increased volume within our brokerage business due to further leveraging our Schneider FreightPower® digital platform, continued expansion of our Power Only offering, and incremental port dray revenues.
Logistics income from operations increased $5.8 million, approximately 26%, in the third quarter of 2022 compared to the same quarter in 2021. Increased net revenue per order within our brokerage business, in addition to volume growth cited above, contributed to the increase in income from operations quarter over quarter.
Other
Other income from operations increased $2.4 million in the third quarter of 2022 compared to the same quarter in 2021. The increase was primarily driven by a higher income from operations in our leasing business and a decrease in performance-based incentive compensation.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Enterprise Results Summary
Enterprise net income increased $76.4 million, approximately 28%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $101.4 million increase in income from operations, partially offset by the corresponding increase in income taxes.
Adjusted net income increased $85.1 million, approximately 31%.
Components of Enterprise Net Income
Enterprise Revenues
Enterprise operating revenues increased $1,008.8 million, approximately 25%, in the nine months ended September 30, 2022 compared to the same period in 2021.
Factors contributing to the increase were as follows:
•a $333.7 million increase in fuel surcharge revenues resulting from increased fuel prices in the first nine months of 2022 compared to the same period in 2021, as well as fuel surcharge revenues from the acquisition of MLS;
•a $279.9 million increase in Truckload segment revenues (excluding fuel surcharge) driven by improved revenue per truck per week, the addition of revenues (excluding fuel surcharge) from the acquisition of MLS, and increased dedicated volumes, partially offset by lower network volumes due to driver capacity constraints primarily in the first half of 2022, reduced network productivity, and a return to more balanced market conditions in the third quarter of 2022;
•a $270.0 million increase in Logistics segment revenues (excluding fuel surcharge) resulting from increased revenue per order in the first half of 2022, volume growth within our brokerage business (including our Power Only offering), and incremental port dray revenues predominately in the first half of 2022 driven by port congestion and supply chain constraints; and
•a $146.4 million increase in Intermodal segment revenues (excluding fuel surcharge) due to an increase in revenue per order and orders despite network fluidity constraints.
Enterprise revenues (excluding fuel surcharge) increased $675.1 million, approximately 18%.
Enterprise Income from Operations and Operating Ratio
Enterprise income from operations increased $101.4 million, approximately 29%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to an increase in revenue per truck per week in Truckload, revenue per order in Intermodal, and net revenue per order in Logistics driven by strong freight market conditions in the first half of 2022, in addition to effective network and revenue management. A net gain on sale of $50.9 million in connection with the sale of our Canadian facility due to a change in approach to servicing Canada also contributed to the increase. Our dedicated Truckload volumes grew with the acquisition of MLS and new business start-ups, while our brokerage business experienced a 13% increase in order volume driven by leveraging our Schneider FreightPower® digital platform and the continued expansion of our Power Only offering. The above factors were partially offset by an increase in driver-related costs resulting from pay increases, costs incurred to attract and retain drivers, and an increase in company drivers. Higher rail purchased transportation costs within Intermodal, a $57.0 million adverse settlement related to a lawsuit with former owners of WSL, fewer equipment sales resulting in lower gains, and higher maintenance costs due to inflationary cost pressures also partially offset the favorable impacts on income from operations noted above.
Adjusted income from operations increased $113.0 million, approximately 32%.
Enterprise operating ratio (operating expenses as a percentage of operating revenues) improved on both a GAAP and adjusted basis when compared to the same period of 2021. Among other factors, our operating ratio can be negatively impacted by changes in portfolio mix when our higher operating ratio, less asset-focused Logistics segment grows faster than our lower operating ratio, capital-intensive Truckload segment.
Enterprise Operating Expenses
Key operating expense fluctuations are described below.
•Purchased transportation costs increased $353.6 million, or 19%, period over period, primarily resulting from increased third-party carrier costs within Logistics due to volume growth and higher purchased transportation costs per order during the first half of 2022, as well as higher rail purchased transportation resulting from an increase in both rail costs and orders in Intermodal.
•Salaries, wages, and benefits increased $201.5 million, or 24%, period over period, largely due to higher driver pay within Truckload and Intermodal resulting from pay increases and actions to address driver capacity constraints, in addition to an increase in company drivers. The acquisition of MLS, an increase in headcount across the organization, and incremental healthcare costs contributed to the remaining increase period over period.
•Fuel and fuel taxes for company trucks increased $186.8 million, or 92%, period over period, driven by an increase in cost per gallon and additional fuel expense recorded related to the acquisition of MLS. A significant portion of fuel costs are recovered through our fuel surcharge programs.
•Depreciation and amortization increased $37.8 million, or 17%, period over period, mainly due to the acquisition of MLS, which accounted for nearly half of the increase. The remaining increase was driven by additional depreciation expense incurred as a result of truck and container growth within Truckload and Intermodal, respectively.
•Operating supplies and expenses—net increased $30.0 million, or 8%, period over period, driven by fewer equipment sales period over period, an increase in equipment rental expense largely due to port congestion, higher maintenance costs due to inflationary cost pressures and the MLS acquisition, additional rail storage expenses caused by network fluidity challenges, and a $5.2 million increase in expense related to an adverse audit assessment over the applicability of state sales tax. These factors were partially offset by the gain relating to the sale of the Company’s Canadian facility in the first quarter of 2022 and lower cost of goods sold in our leasing business due to a reduction in lease activity.
•Insurance and related expenses increased $17.3 million, or 29%, period over period, primarily due to increases in auto liability insurance costs relating to favorable claims frequency and severity in the prior year. The remaining increase can be attributed to increased claims frequency in the current year and insurance premium costs for MLS.
•Other general expenses increased $80.4 million, or 82%, period over period, primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL and higher driver onboarding costs resulting from increased costs to attract and retain drivers and the hiring of additional company drivers in 2022.
Total Other Expenses (Income)
Total other expenses increased $0.2 million, approximately 3%, in the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to a $15.8 million pre-tax gain on our equity investments compared to a $17.1 million pre-tax gain recorded for the same period in 2021, partially offset by a $1.2M decrease in interest expense. See Note 6, Investments, for more information on our equity investments.
Income Tax Expense
Our provision for income taxes increased $24.8 million, approximately 27%, in the nine months ended September 30, 2022 compared to the same period in 2021 due to higher taxable income. The effective income tax rate was 25.0% for the nine months ended September 30, 2022 compared to 25.2% for the same period last year. Our provision for income taxes may fluctuate in future periods to the extent there are changes to tax laws and regulations.
Revenues and Income (Loss) from Operations by Segment
The following tables summarize revenues and income (loss) from operations by segment.
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
Revenues by Segment (in millions) | | 2022 | | 2021 |
| Truckload | | $ | 1,691.2 | | | $ | 1,411.3 | |
| Intermodal | | 971.9 | | | 825.5 | |
| Logistics | | 1,531.2 | | | 1,261.2 | |
| Other | | 274.2 | | | 284.9 | |
| Fuel surcharge | | 648.5 | | | 314.8 | |
| Inter-segment eliminations | | (74.3) | | | (63.8) | |
| Operating revenues | | $ | 5,042.7 | | | $ | 4,033.9 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended
September 30, |
Income (Loss) from Operations by Segment (in millions) | | 2022 | | 2021 |
| Truckload | | $ | 283.3 | | | $ | 197.0 | |
| Intermodal | | 112.3 | | | 100.6 | |
| Logistics | | 117.1 | | | 55.0 | |
| Other | | (55.6) | | | 3.1 | |
| Income from operations | | 457.1 | | | 355.7 | |
| Adjustments: | | | | |
| Litigation and audit assessments | | 62.2 | | | — | |
| Acquisition-related costs | | 0.3 | | | — | |
| | | | |
| | | | |
| Property gain—net | | (50.9) | | | — | |
| Adjusted income from operations | | $ | 468.7 | | | $ | 355.7 | |
We monitor and analyze a number of KPIs to manage our business and evaluate our financial and operating performance.
Truckload
The following table presents our Truckload segment KPIs for the periods indicated, consistent with how revenues and expenses are reported internally for segment purposes. The two operations that make up our Truckload segment are as follows:
•Dedicated - Transportation services with equipment devoted to customers under long-term contracts.
•Network - Transportation services of one-way shipments.
MLS and deBoer impacts are included within dedicated operations below beginning in the first and third quarters of 2022, respectively.
| | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| | | 2022 | | 2021 |
| Dedicated | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 892.1 | | | $ | 587.3 | |
Average trucks (2) (3) | | 5,908 | | | 4,182 | |
Revenue per truck per week (4) | | $ | 3,922 | | | $ | 3,643 | |
| Network | | | | |
Revenues (excluding fuel surcharge) (1) | | $ | 796.6 | | | $ | 821.6 | |
Average trucks (2) (3) | | 4,533 | | | 5,159 | |
Revenue per truck per week (4) | | $ | 4,564 | | | $ | 4,133 | |
| Total Truckload | | | | |
Revenues (excluding fuel surcharge) (5) | | $ | 1,691.2 | | | $ | 1,411.3 | |
Average trucks (2) (3) | | 10,441 | | | 9,341 | |
Revenue per truck per week (4) | | $ | 4,201 | | | $ | 3,914 | |
Average company trucks (3) | | 8,420 | | | 6,960 | |
Average owner-operator trucks (3) | | 2,021 | | | 2,381 | |
Trailers (6) | | 42,980 | | | 36,434 | |
Operating ratio (7) | | 83.2 | % | | 86.0 | % |
(1)Revenues (excluding fuel surcharge), in millions, exclude revenue in transit.
(2)Includes company and owner-operator trucks.
(3)Calculated based on beginning and end of month counts and represents the average number of trucks available to haul freight over the specified timeframe.
(4)Calculated excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes, using weighted workdays.
(5)Revenues (excluding fuel surcharge), in millions, include revenue in transit at the operating segment level and, therefore does not sum with amounts presented above.
(6)Includes entire fleet of owned trailers, including trailers with leasing arrangements between Truckload and Logistics.
(7)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Truckload revenues (excluding fuel surcharge) increased $279.9 million, approximately 20%, in the nine months ended September 30, 2022 compared to the same period in 2021, due to a 12% increase in rate per loaded mile, realized in response to the impacts of inflation on operating costs and ongoing challenges at customer locations resulting in longer dwell times, partially offset by reduced network productivity. Additionally, an 8% increase in volume resulted from the acquisition of MLS and new business start-ups within dedicated, while network volumes declined mainly due to driver capacity constraints in the first half of 2022 and a return to more balanced market conditions in the third quarter of 2022.
Truckload income from operations increased $86.3 million, approximately 44%, in the nine months ended September 30, 2022 compared to the same period in 2021. Factors contributing to the increase in income from operations include favorable pricing conditions, a $50.9 million net gain related to the sale of the Company’s Canadian facility, and additional dedicated volumes inclusive of the MLS acquisition. These items were partially offset by lower volumes within network; an increase in driver-related costs resulting largely from pay increases, actions taken to attract and retain drivers, and an increase in company drivers within dedicated; fewer equipment sales resulting in lower gains; and higher maintenance costs due to inflationary cost pressures.
Intermodal
The following table presents the KPIs for our Intermodal segment for the periods indicated.
| | | | | Nine Months Ended
September 30, | | | Six Months Ended
June 30, |
| | | | 2022 | | 2021 | | | 2023 | | 2022 |
Orders (1) | Orders (1) | | 345,533 | | | 334,480 | | Orders (1) | | 203,367 | | | 229,790 | |
| Containers | Containers | | 28,308 | | | 23,796 | | Containers | | 27,419 | | | 28,381 | |
Trucks (2) | Trucks (2) | | 1,691 | | | 1,569 | | Trucks (2) | | 1,568 | | | 1,590 | |
Revenue per order (3) | Revenue per order (3) | | $ | 2,803 | | | $ | 2,442 | | Revenue per order (3) | | $ | 2,600 | | | $ | 2,735 | |
Operating ratio (4) | Operating ratio (4) | | 88.4 | % | | 87.8 | % | Operating ratio (4) | | 89.8 | % | | 87.3 | % |
(1)Based on delivered rail orders.
(2)Includes company and owner-operator trucks at the end of the period.
(3)Calculated using rail revenues excluding fuel surcharge and revenue in transit, consistent with how revenue is reported internally for segment purposes.
(4)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Intermodal revenues (excluding fuel surcharge) increased $146.4decreased $110.1 million, approximately 18%17%, in the ninesix months ended SeptemberJune 30, 20222023 compared to the same period in 2021. Contributing2022. This was driven by softer market conditions which led to the increase wasan 11% decrease in volume and a $361,$135, or 15%5%, improvementdecrease in revenue per order and a 3% increase in volume; both of which were driven by strong market conditions in the first half of the year. This was partially offset by shorter length of haul. Intermodal grew its container count by 4,512, or 19%, period over period, which helped drive the increase in order count despite fluidity challenges.order.
Intermodal income from operations increased $11.7decreased $27.5 million, approximately 12%34%, in the ninesix months ended SeptemberJune 30, 20222023 compared to the same period in 2021,2022, mainly the result of factors impacting revenues discussed above, partially offset by higherlower rail-related and dray execution costs.
Logistics
The following table presents the KPI for our Logistics segment for the periods indicated.
| | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| | | 2022 | | 2021 |
Operating ratio (1) | | 92.4 | % | | 95.6 | % |
| | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| | | 2023 | | 2022 |
Operating ratio (1) | | 95.7 | % | | 91.6 | % |
(1)Calculated as segment operating expenses divided by segment revenues (excluding fuel surcharge) including revenue in transit and related expenses at the operating segment level.
Logistics revenues (excluding fuel surcharge) increased $270.0decreased $341.4 million, approximately 21%32%, in the ninesix months ended SeptemberJune 30, 20222023 compared to the same period in 2021.2022. This increase was mainly the result of an increasea decrease in revenue per order and 13% volume growth within our brokerage business driven by supportive market conditions in the first half of 2022, and expansion of our Power Only offering and Schneider FreightPower® digital platform. Also contributing to the increase were additional portbusiness. Port dray revenues predominatelydecreased as well due to reduced freight volume and improved port fluidity in the first half of 2022 resulting from port congestion and supply chain constraints.2023.
Logistics income from operations increased $62.1decreased $57.9 million, approximately 113%65%, in the ninesix months ended SeptemberJune 30, 20222023 compared to the same period in 2021,2022, primarily due to netthe factors related to revenue per order improvementslisted above. This was partially offset by decreases in addition to volume growth within both brokerage and our port dray business.third party transportation costs.
Other
Included in Other was a lossincome from operations of $55.6increased $64.8 million in the ninesix months ended SeptemberJune 30, 20222023 compared to income of $3.1 million in the same period in 2021.2022. The change was primarily due to a $57.0 million adverse settlement related to a lawsuit with former owners of WSL and $5.2 million of expense related to an adverse audit assessment over the applicability of state sales tax. The above items weretax in 2022. This was partially offset by an increase in income from operations within our leasing business.
$2.9 million of additional interest and penalties related to the sales tax audit assessment. See Note 12,
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash are working capital requirements, capital expenditures, dividend payments, share repurchases, and debt service requirements. Additionally, we may use cash for acquisitions and other investing and financing activities. Working capital is required principally to ensure we are able to run the business and have sufficient funds to satisfy maturing short-term debt and operational expenses. Our capital expenditures consist primarily of transportation equipment and information technology.
Historically, our primary source of liquidity has been cash flow from operations. In addition, we have a $250.0 million revolving credit facility and a $150.0 million accounts receivable facility, for which our combined available capacity as of SeptemberJune 30, 20222023 was $322.8$322.4 million. We anticipate that cash generated from operations, together with amounts available under our credit facilities, will be sufficient to meet our requirements for the foreseeable future. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that we will obtain these funds through additional borrowings, equity offerings, or a combination of these potential sources of liquidity. Our ability to fund future operating expenses and capital expenditures, as well as our ability to meet future debt service obligations or refinance our indebtedness, will depend on our future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
The following table presents our cash and cash equivalents, marketable securities, and outstanding debt as of the dates shown.
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | $ | 349.7 | | | $ | 244.8 | |
| Marketable securities | | 44.6 | | | 49.3 | |
| Total cash, cash equivalents, and marketable securities | | $ | 394.3 | | | $ | 294.1 | |
| | | | |
| Debt: | | | | |
| Senior notes | | $ | 205.0 | | | $ | 265.0 | |
| Finance leases | | 7.7 | | | 5.3 | |
| Total debt | | $ | 212.7 | | | $ | 270.3 | |
| | | | | | | | | | | | | | |
| (in millions) | | June 30, 2023 | | December 31, 2022 |
| Cash and cash equivalents | | $ | 249.2 | | | $ | 385.7 | |
| Marketable securities | | 54.8 | | | 45.9 | |
| Total cash, cash equivalents, and marketable securities | | $ | 304.0 | | | $ | 431.6 | |
| | | | |
| Debt: | | | | |
| Senior notes | | $ | 205.0 | | | $ | 205.0 | |
| Finance leases | | 11.1 | | | 10.1 | |
| Total debt | | $ | 216.1 | | | $ | 215.1 | |
Debt
At SeptemberAs of June 30, 2022,2023, we were in compliance with all financial covenants under our credit agreements and the agreements governing our senior notes. See Note 8, Debt and Credit Facilities, for information about our financing arrangements.
Cash Flows
The following table summarizes the changes to our net cash flows provided by (used in) operating, investing, and financing activities for the periods indicated.
| | | | | Nine Months Ended
September 30, | | | Six Months Ended
June 30, |
| (in millions) | (in millions) | | 2022 | | 2021 | (in millions) | | 2023 | | 2022 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 578.3 | | | $ | 396.0 | | Net cash provided by operating activities | | $ | 303.2 | | | $ | 353.7 | |
| Net cash used in investing activities | Net cash used in investing activities | | (371.5) | | | (249.6) | | Net cash used in investing activities | | (364.1) | | | (180.3) | |
| Net cash used in financing activities | Net cash used in financing activities | | (101.9) | | | (37.7) | | Net cash used in financing activities | | (75.6) | | | (87.2) | |
NineSix Months Ended SeptemberJune 30, 20222023 Compared to NineSix Months Ended SeptemberJune 30, 2021
Operating Activities
Net cash provided by operating activities increased $182.3decreased $50.5 million, approximately 46%14%, in the first ninesix months of 20222023 compared to the same period in 2021.2022. The increasedecrease was a result of an increase in cash used for working capital, as well as a decrease in net income adjusted for various noncash charges and a decrease in cash used for working capital.charges. Working capital changes were driven by a decreasean increase in cash used for payables and other liabilities due in part to a $57.0 million adverse judgment related to a lawsuit with former owners of WSL in 2022, partially offset by an increase in cash provided by trade accounts receivable and other liabilities, primarilywhich corresponds with the result of a larger increasedecrease in trade accounts receivable during 2021 than in 2022 and prior year’s $30.7 million payment of payroll taxes deferred under the CARES Act.revenues.
Investing Activities
Net cash used in investing activities increased $121.9$183.8 million, approximately 49%102%, in the first ninesix months of 20222023 compared to the same period in 2021.2022. The increase in cash used was primarily driven by an increase in net capital expenditures;expenditures and the acquisitionfunding of deBoera note receivable in 2023 for $32.5$10.0 million net of cash acquired; and additional investments in equity securitieswas partially offset by $28.2 million related to acquisitions made by the Company in 2022.
Net Capital Expenditures
The following table sets forth our net capital expenditures for the periods indicated.
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| (in millions) | | 2022 | | 2021 |
| Purchases of transportation equipment | | $ | 321.1 | | | $ | 296.9 | |
| Purchases of other property and equipment | | 38.4 | | | 33.4 | |
| Proceeds from sale of property and equipment | | (101.1) | | | (145.2) | |
| Net capital expenditures | | $ | 258.4 | | | $ | 185.1 | |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 |
| Purchases of transportation equipment | | $ | 344.4 | | | $ | 159.0 | |
| Purchases of other property and equipment | | 25.3 | | | 22.0 | |
| Proceeds from sale of property and equipment | | (71.6) | | | (71.0) | |
| Net capital expenditures | | $ | 298.1 | | | $ | 110.0 | |
Net capital expenditures increased $73.3$188.1 million in the first ninesix months of 20222023 compared to the same period in 2021.2022. The increase was driven by a $44.1 million decrease in proceeds from the sale of property and equipment and a $24.2$185.4 million increase in purchases of transportation equipment mainly due to replacement equipment, growth capital, and higher costs for new equipment. The decrease inProceeds from sale of property and equipment were comparable year over year. 2023 proceeds is primarily due to fewerincluded more equipment sales partially offset byin comparison to 2022 including $50.9 million of proceeds from the sale of ourthe Company’s Canadian facility in the first quarter of 2022.
Financing Activities
Net cash used in financing activities increased $64.2decreased $11.6 million, approximately 170%13%, in the first ninesix months of 20222023 compared to the same period in 2021. The main driver of the increase in net cash used was2022 primarily due to a $60.0 million repayment of a private placement note in March2022 that was partially offset by $36.1 million of 2022.
Other Considerations that Could Affect Our Results, Liquidity, or Capital Resources
Factors that Could Result in a Goodwill Impairment
Goodwill is tested for impairment at least annually using the discounted cash flow, and guideline public company, and guideline transaction methods, in calculatingas applicable, to calculate the fair values of our reporting units. Key inputs used in the discounted cash flow approach include growth rates for sales and operating profit, perpetuity growth assumptions, and discount rates. AsKey inputs used in the guideline public company and guideline transaction methods include EBITDA valuation multiples of comparable companies and transactions. If interest rates rise or EBITDA valuation multiples of comparable companies and transactions decline, the calculated fair values of our reporting units will decrease, which could impact the results of our goodwill impairment tests.
We will perform our annual evaluation of goodwill for impairment as of October 31, 2022,2023, with such analysis expected to be finalized during the fourth quarter. As part of our annual process of updating our goodwill impairment evaluation, we will assess the impact of current operating results and our resulting management actions to determine whether they have an impact on the long-term valuation of reporting units and the related recoverability of our goodwill.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2022,2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Contractual Obligations
See the disclosure under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 20212022 for our contractual obligations as of December 31, 2021.2022. There were no material changes to our contractual obligations during the ninesix months ended SeptemberJune 30, 2022.2023.
CRITICAL ACCOUNTING ESTIMATES
We have reviewed our critical accounting policies and considered whether new critical accounting estimates or other significant changes to our accounting policies require additional disclosures. We have found that the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 20212022 are still current and that there have been no significant changes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks have not changed significantly from the market risks discussed in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 as filed with the SEC on February 18, 2022.17, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control
There werehave been no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various lawsuits in the ordinary course of its business. For information relating to legal proceedings, see Note 12, Commitments and Contingencies, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Except as set forth below, thereThere have been no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
The following risk factor replaces in its entirety the risk factor titled “We depend on railroads in the operation of our intermodal business, and therefore, our ability to offer intermodal services could be limited if we experience instability from third parties we use in that business” included in our 2021 Form 10-K. For the avoidance of doubt, only the second and final paragraphs of this risk factor have been modified.
We depend on railroads in the operation of our intermodal business, and therefore, our ability to offer intermodal services could be limited if we experience instability from third parties we use in that business.
Our Intermodal segment utilizes railroads and some third-party drayage carriers to transport freight for our intermodal customers. The majority of these services are provided pursuant to contractual relationships with the railroads. While we have had agreements with all of the Class I railroads, our primary contracts are currently with the BNSF and CSX Transportation (“CSX”) freight railroads to provide rail-based freight transportation services in support of our intermodal operations. One of our competitors has a preferential contractual arrangement with BNSF, which limits the market share and relative profitability of the services we provide through the BNSF. Beginning in 2023, UP will replace BNSF as our primary rail service provider in the western U.S. The transition to UP and away from BNSF will be complete by January 2023. The transition will require cooperation and coordination by Schneider with both BNSF and UP to be successful and to ensure no interruptions in our intermodal service results. Our results of operations could be adversely affected by any extended interruption of our intermodal service offering due to this transition or UP's ability to manage our rail volumes following the transition.
In certain markets and rail corridors, rail service is limited to a few railroads or even a single railroad due to the lack of competition. Our ability to provide intermodal services in certain traffic lanes is likely to be reduced or constricted if any of the Class I railroads were to discontinue service or have interruptions of service in those lanes or if the overall quality of rail service in those lanes were to deteriorate. Since 2020, the National Carriers’ Conference Committee (“NCC”), which represents all major Class 1 freight railroads in the U.S., as well as many smaller freight and passenger lines in national collective bargaining and labor organizations representing North American rail workers have been engaged in negotiations to settle disputes of rates of pay, rules, and working conditions for railroad workers, but those negotiations failed to progress. A three-person presidential emergency board, created and appointed by President Biden, became involved in the process and conducted hearings in July and August and were also unsuccessful in resolving the dispute. A federally mandated cooling-off period for negotiations expired on September 16, 2022, opening the possibility of a nationwide strike by rail workers or lockout by the railroads. On September 16, 2022, the major railroads and unions representing railroad workers reached a tentative agreement thereby averting significant rail and shipping disruptions in the U.S. The deal must still be ratified by the 12 unions representing the rail workers; however, while the ratification process remains pending, the rail workers have agreed not to strike. As of the date of this Quarterly Report on Form 10-Q, six unions have ratified the agreement; two unions have rejected the agreement; one union initially rejected the agreement but recently reached a new tentative agreement after continued negotiations with the railroads; one union, the third largest rail union, recently rejected the agreement but will maintain the status quo during continued negotiations until at least November 19, 2022; and the remaining two unions will hold votes by November 20, 2022. If an agreement is not ultimately ratified or rail service is interrupted or experiences a deterioration in quality due to the ongoing labor dispute, it could have a material adverse effect on our business.
Our contracts with the railroads are subject to periodic renewal, and our intermodal business may be adversely affected by any adverse change in our contract terms with the railroads, our relationships with the railroads, or declines in service and volume levels provided by the railroads.
In addition, a portion of the freight we deliver through both our Intermodal and Truckload segments is imported to the U.S. through ports of call where workers are largely unionized, and which recently have been, subject to COVID-induced congestion, backlogs, and unloading delays. The ILWU is a labor union which primarily represents dock workers on the West Coast of the U.S. The ILWU’s current coast wide contract with west coast port owners expired on July 1, 2022. As of the date
of this Quarterly Report on Form 10-Q, the ILWU and PMA, which represents west coast port owners, had not entered into a new contract. In the previous four contract negotiations between the ILWU and port owners dating back to the late 1990s, negotiations went past the July 1 deadline, and in those contract years, work slowdowns or employer lockouts ensued. News reports indicate that the expiration of the contract without an extension removes mechanisms for handling workplace grievances and, as a result, may increase the likelihood of slowdowns if there are labor disputes at any relevant ports, and that there have been recent actions at certain ports, including refusal to work in specific areas or on specific vessels due to safety concerns, as well as accusations of work slowdown tactics by the ILWU. Although, as of the date of this Quarterly Report on Form 10-Q, there have been no reports or signs of work stoppages or strikes while the ILWU and PMA continue to negotiate and the reported incidents generally haven’t delayed cargo movement; there can be no guarantee that work stoppages, shipping backlogs, port congestion, or other disruptions at any of these ports will not occur or that confrontations over work disputes won’t escalate. Furthermore, according to news reports, throughout the first half of 2022 cargo had been re-routed to East Coast ports in preparation for labor issues at West Coast ports. If cargo continues to be re-routed due to ongoing labor issues, the East Coast ports may also experience increased congestion for the foreseeable future. In addition, recent news reports indicate that the security guards at the Los Angeles-Long Beach Ports voted to authorize a strike, although a date was not set, and it is possible that dock workers would not cross picket lines in the event of strike by security guards at those ports. Any such event could have a material adverse effect on our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company does not have a share repurchase program and did not repurchasefollowing table sets forth information regarding the purchases of our equity securities made by or on behalf of us or any equity securitiesaffiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three months ended SeptemberJune 30, 2022.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (in millions) |
| April 1, 2023 - April 30, 2023 | | — | | | $ | — | | | — | | | $ | 150.0 | |
| May 1, 2023 - May 31, 2023 | | 209,223 | | | 26.23 | | | 209,223 | | | 144.5 | |
| June 1, 2023 - June 30, 2023 | | 1,162,816 | | | 26.34 | | | 1,162,816 | | | 113.9 | |
| Total | | 1,372,039 | | | | | 1,372,039 | | | |
Limitation Upon Payment of Dividends
The 20182022 Credit Facility includes covenants limiting our ability to pay dividends or make distributions on our capital stock if a default exists under the 20182022 Credit Facility or would be caused by giving effect to such dividend.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.Rule 10b5-1 Trading Plans
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
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Exhibit
Number
| | Exhibit Description |
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31.1* | | |
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31.2* | | |
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32.1** | | |
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32.2** | | |
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101.INS* | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* | | XBRL Taxonomy Extension Schema Document |
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101.CAL* | | XBRL Taxonomy Calculation Linkbase Document |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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104* | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL |
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| | | | Incorporated by Reference Herein |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | File No. | | Filing Date |
| | | | | | | | | | |
| 10.1 | | Amendment No. 4, dated as of June 1, 2023, to Amended and Restated Receivables Purchase Agreement, dated as of March 31, 2011, as amended as of December 17, 2013, as amended and restated as of September 5, 2018, and as further amended on July 30, 2021, among Schneider Receivables Corporation, as seller, Schneider National, Inc., as the servicer, Wells Fargo Bank, N.A., as administrative agent, and the purchasers party thereto | | 8-K | | 10.1 | | 001-38054 | | 6/7/2023 |
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| 10.2+ | | | | 8-K | | 10.1 | | 001-38054 | | 7/18/2023 |
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| 31.1* | | | | | | | | | | |
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| 31.2* | | | | | | | | | | |
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| 32.1** | | | | | | | | | | |
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| 32.2** | | | | | | | | | | |
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| 101.INS* | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | |
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| 101.SCH* | | XBRL Taxonomy Extension Schema Document | | | | | | | | |
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| 101.CAL* | | XBRL Taxonomy Calculation Linkbase Document | | | | | | | | |
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| 101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | |
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| 101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document | | | | | | | | |
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| 101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
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| 104* | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL | | | | | | | | |
* Filed herewith.
** Furnished herewith.
+ Constitutes a management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Schneider National, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | SCHNEIDER NATIONAL, INC. |
| | |
| Date: | October 27, 2022August 3, 2023 | /s/ Stephen L. Bruffett |
| | Stephen L. Bruffett |
| | Executive Vice President and Chief Financial Officer |
| | (Duly Authorized Officer and Principal Financial Officer) |